PEOPLE EARNING MASSIVE PENSIONS SHOULD FOLLOW SHEEHY'S LEAD AND TAKE REDUCTIONS - KENNY

Posted on November 8, 2012 10:50 AM   |   Permanent Link   

I want to speak tonight to re-iterate what the Government has been doing in the area of pensions, tax relief and public service pay, as I believe what is being done is being distorted by the opposition.

With respect to what is termed "The raid on pensions" - this is a reference to the pension fund levy of 0.6% which will apply to the assets of pension funds for the period 2011 to 2014.

The monies raised from the levy so far are €463m in 2011, and about €490m in 2012, are being used to fund the Government's Jobs Initiative. The measures introduced as part of the Jobs Initiative include a new 9% VAT rate on certain activities, the halving of the lower rate of PRSI and small amounts of additional current and capital expenditure.

There is confidence that the jobs-related measures introduced by the Government in May last year, such as reducing the rate of VAT in the high value added tourism sector, are playing an important role in both creating, and sustaining employment. Encouragingly, there are signs of stabilisation in labour market conditions. I would add that the standardised unemployment rate peaked earlier this year even tough it is still far too high.

The opposition have also claimed that the Government has made a threat to change tax relief. Actually, the Government made no such threat. In fact, in his 2012 Budget speech in December last, the Minister for Finance, Michael Noonan, said he did not even propose to do it!

A broad informal consultation was undertaken with various stakeholders in the pensions sector this year and is ongoing. The views of these stakeholders will be taken into account in the context of any decisions regarding the incentive regime for pension saving.

The Deputies in opposition claim this Government has not acted to address public concern about pay and pension costs. This is simply not the case and I think the opposition deputies know this. Public service pay (as well as that of commercial CEOs in the public sector) has been reduced and capped.
The government decided as its first act in office to reduce the salaries of An Taoiseach, Tánaiste, Ministers and Ministers of State with immediate effect. All members of the Government accepted reductions in their pay on its first day in office. The Taoiseach's pay rate was reduced to €200,000 and a pro rata cut was applied to the pay of Ministers and Ministers of State and related office holders. These pay cuts will, of course, reduce the pensions paid to cabinet members in the future.

As everyone knows, public service pay has been reduced by some 14% on average (and by considerably more for higher paid public servants) by the pension-related deduction and by the pay cut. There have, of course, also been progressive changes to the tax system which, at the margin means PAYE, PRSI, USC, the pension-related deduction and other statutory reductions such as a mandatory pension contribution amount to over 60%. This is a mark of a highly progressive overall system and it is only right that the better paid should bear the largest burden.

In addition to this reduction in the day-to-day expenditure on public service pay, it is the case that public service pensions in payment (including for office holders, the judiciary, TDs, senior civil and public servants and so on) have been reduced, on average by more than 4%, by a public service pension cut, which now has a 20% top rate. And pensions will be lower by some 7% on average into the future because of the effect of pay cuts on final salary schemes.

Some individuals, such as those running banks that are now State run have chosen to accept reductions in their pensions. This is welcome and I want to see more of it. Some people legally entitled to crazily large pensions do not deserve them, in my opinion, because of the mistakes that they made in the past. I want to see them volunteer to take substantial cuts in those pensions. I would call on others to follow former AIB CEO Sheehy's lead and take meaningful pension reductions.

In terms of reform, earlier this year Minister Howlin brought forward and the Oireachtas passed the Public Service Pensions (Single Scheme and Other Provisions) Act. That Act is a major piece of legislation and changes the architecture of public services pensions. For new entrants it changes the calculation of pensions from the current position based on final salary to a career average basis - a move which is much fairer and will bring down the size of pensions for those who retire on higher salaries, especially those who are promoted towards the end of their career.

The scale of the reduction in future cost as a result of the new scheme is significant. The Department of Public Expenditure and Reform have estimated that it will reduce costs by up to 30% when the scheme has full effect in the middle years of the century. I welcome long-term thinking contained in this scheme.

I do not mind coming in and engaging in debate with the opposition. What I do mind is coming in to debate poor quality, spurious motions that are put down for the sake of it. I expected the opposition to do better than this for the sake of the level of debate in this House.