IRELAND - The Irish government has unveiled plans to cut public spending by €2.1bn, and almost €1.4bn of this will be achieved by requiring public sector workers to pay a new pension 'levy' averaging 7.5% towards their pensions.

The government said the new 'pension-related deduction' would apply to the total earnings of all public servants, though not those already receiving a pension, and would be "graduated so that the effect is somewhat less at lower income levels and greater at higher levels".

The average deduction will be 7.5% of total earnings, although the contribution will be made up of 3% on the first €15,000 of pay, 6% on the next €5,000 and a 10% levy on the remainder of earnings.

A table showing the effect of the contributions means the lowest paid public sector workers, on €15,000 a year, would contribute 3%, or €450 a year, while those earning €25,000 would pay 5%, or €1,250 a year.

The Department of Finance said: "The basis for the deduction is that public service pensions are acknowledged to be significantly more favourable than the generality of pensions in the private sector, both in regard to their terms and their overall security, and it is therefore appropriate that a deduction should be made to reflect this reality at a time when savings are needed from the public service pay bill."

That said, the decision to increase pension contributions is believed to have been one of the sticking points that caused a breakdown in talks between trade unions and the government earlier this week, when a statement from the Taoiseach's office stated Brian Cowan "regrets that it was not possible for the unions to agree the proposals for the reduction in the public service pay roll presented this evening [Monday night]".

Impact, the largest public service union in Ireland, said it planned to consult with members over the government's plans for "huge hikes in public service staff pension contributions", as it said the failure to agree measures to protect lower-paid workers, or receive larger contributions from businesses and the 'better off', made it "extremely difficult for ordinary workers to swallow" the changes.

The union said its members had accepted they would have to make a significant contribution to help ease Ireland's economic problems, but claimed the business community had not offered any "any tangible contribution" to economic recovery, while wealthy individuals had not been asked to make a "comparable sacrifice".

Peter McLoone, general secretary at Impact, said the government's decision would mean a public servant earning €770 a week before tax "would have to pay an extra €52 pension hike a week on top of their existing tax, pension contributions and the new 1% levy" - the income levy announced in the 2008 Budget.

"Workers are angry that the people who caused this mess have largely walked away scot-free, some of them underwritten by money taken out of the pockets of ordinary taxpayers, while workers in the public and private sector are being asked to pick up the tab," said McLoone.

"They accept that these are extraordinary circumstances and that they must contribute to economic recovery. But they cannot understand why the entire burden of recovery has so far been placed on ordinary working people, particularly when their unions had offered to back a hefty sacrifice so long as others were also prepared to contribute," he said.

The Services, Industrial, Professional and Technical Union (SIPTU) has meanwhile said it "very much regrets the failure to reach agreement on a social solidarity pact in our discussions with the government".

Jack O'Connor, general president of SIPTU, said: "We had hoped to emerge with a proposal which provided some level of guaranteed pension for workers in the private sector who have been paying into schemes all their lives and who may now receive nothing at all.

"Regrettably, as it turns out, working people once again are expected to carry the entire burden of a crisis created by those at the top of society. Ironically, a worker on €30,000 a year will now be paying €33.52 a week for their pension, slightly more than they will actually get out of it after 20 years' service. Even in its application this levy discriminates disproportionately against middle and low-income workers," he added.

Fine Gael, the opposition political party, has also criticised the government's plans, which it claimed would still leave the government €500m short of its €2.1bn target because of the "deflationary effects on taxation".

Richard Bruton, deputy leader and finance spokesman for Fine Gael, said: "The principle of asking public servants to contribute more to the pensions is not unreasonable, but it seems highly unfair to ask the lowest-paid public servants to contribute more when they do not benefit from pensions beyond their entitlement to the State pension."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

Topics