IRELAND - Government plans to cut the public sector wage bill by incentivising early retirement may not be "legally sound", Impact, the trade union, has warned.

Brian Lenihan, minister of finance, announced a plan in the supplementary budget earlier this month to allow public sector workers the option of taking their pension and 10% of a cash lump sum at age 50 without any actuarial reductions but subject to tax provisions in force at the time the application is approved. (See earlier IPE article: Ireland takes uni pensions to boost treasury coffers)

However Impact, the country's largest public service union with 60,000 members, claimed the plan was a "recipe for public service chaos" as the way the incentive scheme is currently drafted "would inevitably lead to conflict and legal challenges".

This is because Lenihan also confirmed in the Budget that the Commission on Taxation is "examining various aspects of the existing pension tax treatment, including the treatment of lump sums" with the recommendations expected to be included in the next Budget in December.

Peter McLoone, general secretary of Impact, said: "These proposals effectively force staff to gamble on their retirement income after heavy hints from the Minister that the tax regime may be changed next year."

He argued the uncertainty over future taxation means "staff must either gamble that pension lump sums will be taxed in future, in which case they are effectively forced to take early retirement and forego up to 10 years of pay. Or they must gamble that their pension won't be taxed, and possibly end up with a much-reduced retirement income if the Minister decides to impose a tax".

Impact has therefore called on the government to go "back to the drawing board" as it warned there needs to be certainty on tax charges "before any scheme could be legally safe", and warned it would fight against any changes to the tax status of lump sums.

The union claimed the scheme had been designed without consultation and suggested the proposals risked "devastating the management and administration of public services by creating a stampede of experienced staff out of their jobs".

"The government seems to believe those left behind - denied the benefits of the scheme, threatened with a tax hit on their own retirement income, paying a public service levy worth an average 7.5% of gross pay and probably without the necessary experience - will seamlessly ‘reorganise and restructure" themselves to fill the gaps. It's simply not going to happen," added McLoone.

In a similar comment on ageing population, Vladimir Spidla, European commissioner for employment, social affairs and equal opportunities, warned the current economic climate means adopting early retirement strategies may no longer help economies.

"In dealing with the short-term challenges of the economic crisis we must not forget the long-term challenge of ageing," said Spidla.

"Simple sending people into early retirement - as we have done in the past - is not a solution this time round. We need to emerge from this crisis with more and better employment opportunities for older people. In an ageing society, everyone needs a chance to take part in the labour market," he added.

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

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