IRELAND - The Irish Business and Employers Confederation (IBEC) has called on the government to implement more radical reforms in public sector pensions, including a cap on contributions.

Suggestions for the reforms put forward by the group state all public servants should be required to contribute towards the cost of funding their retirement benefits, which in the majority of cases are linked to final salary.

In addition, the IBEC has proposed the government set a contribution rate cap, as yet unspecified, after which point public sector employees would have to fund any pension liabilities on an equal basis.

The call for further reforms followed confirmation in the Irish Parliament last week by Brian Cowen, the minister for finance, public sector pension liabilities for 2007 was estimated to have reached €75bn. (See earlier IPE story: Irish public sector pensions hit €75bn)

As a result, the IBEC has warned the government it "must move to cap the escalating cost of public service pensions and introduce more radical reforms", as although civil servants recruited since 1995 have had to make a contribution to their own pension, they have effectively been "reimbursed" for this in the form of a salary increase "fully paid out for by the public purse".

However, Brendan McGinty, director of IBEC, pointed out "most public servants are unaware of the value and cost of their pension scheme and the massive financial investment needed by the government to maintain it".

To combat this, IBEC wants the government to complete and publish a detailed actuarial analysis of the public sector pension liabilities, while to improve awareness about the cost of pensions it has suggested recording an "indicative value" of pension contribution rates onto payslips.

McGinty said: "The revelation that the state's pension bill in 2007 has soared to €75bn is extremely worrying. This has jumped dramatically from €45bn."

"Despite very modest reforms in recent years, these are a far cry from the reforms introduced in the private sector and about 60% of public sector workers continue to enjoy the more generous pre-1995 pension benefits," he added.

A spokesman from the Department for Finance pointed out the exercise which resulted in the €75bn figure had not been carried out on an annual basis, and is "the only recent set of figures" the department had.

He added: "A figure of €45bn was quoted for 2006. But this figure relates to serving public servants only it does not include pensioners who are already being paid. The 2007 figure of €75bn covers both."

That said, a recent economic survey by the Organisation for Economic Co-operation and Development (OECD) on the state of the Irish economy noted public spending on pensions is "set to rise by more than 6 percentage points of GDP by 2050, more than in most other EU countries".

The report also claimed the current pension system "will become unsustainable as the population ages, even with the resources in the National Pension Reserve Fund", and as a result it will require "substantial changes in the overall composition of public spending, in taxation or in the pension system".

To combat this, the OECD suggested the standard retirement age should be indexed to longevity and an explicit target for the value of the state pension adopted, while the "current approach to up-rating public service pensions in payment should be reconsidered".

It added: "The recent Green Paper on Pensions has outlined options for reform. This should be used as an opportunity to implement a coherent package of measures that would put the system on the right track for the long term."

In response to the economic survey, Cowen said "in view of the present economic climate" he accepted the advice of the OECD on the need for public spending to slow, and the importance of not locking in expensive spending commitments. 

He added: "The rationale for publishing the Green Paper on Pensions last year was to stimulate debate on how to address the challenge of sustainability. The findings of the OECD will be a useful input in that context."
 
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