Press release
Minister McGrath publishes actuarial review of public service pension liabilities
From Department of Public Expenditure, NDP Delivery and Reform
Published on
Last updated on
From Department of Public Expenditure, NDP Delivery and Reform
Published on
Last updated on
The Minister for Public Expenditure and Reform, Michael McGrath, T.D. today [Tuesday 15th December 2020] briefed Government on the findings of an Actuarial Review of Public Service Pension Liabilities in respect of Public Service Occupational Pensions in Ireland. This process occurs every 3 years as required under EU rules.
The value of the State’s Accrued Liability in respect of retirement benefits for current and former public service employees is estimated as €149.6bn as at 31st December 2018. This figure represents the value in “today’s money” terms of all expected future superannuation benefit payments arising from accrued service to 31st December 2018.
Over 70% of the increase in the reported obligation from the last review can be attributed to a technical revaluation of the obligations due to a change in prescribed assumptions by Eurostat. The accrual of additional benefits by current employees, including new staff, also increases the accrued liability.
The Minister speaking today stated that
“The significance of the public service to the overall well-being of the country has never been more evident than during the past 10 months as we have witnessed the resourcefulness of staff at all levels in playing their essential part in combatting the impact of Covid-19.
Pension benefits are an important part of the remuneration of public servants and the overall process of the recruitment and retention of staff. It is imperative that we have a clear picture of the value of these benefits and that is provided by this report which covers the future entitlements of employees across vital areas such the Health and Education sectors, the Garda Síochána, Civil Service, Defence Forces, Local Authorities and Non-Commercial State Sponsored Bodies.
While the overall figure is undoubtedly large, it is important to bear in mind that the accrued liability will be paid over the next 70 years or so. It is also important to highlight that a number of significant steps have been taken to improve the long-term sustainability of public service pensions including the Single Public Service Pension Scheme introduced for new entrants from 2013.
Current public sector employees make a significant contribution to funding the overall cost of benefits provided amounting to €1.4 billion in 2019 including the Additional Superannuation Contribution by public servants introduced under the Public Service Pay and Pensions Act 2017.
In addition, there has been an increase in the compulsory retirement age from 65 to 70 for public servants recruited before 1st April 2004. This will also assist in reducing the time period over which pension payments will be paid to those public service employees who opt to remain in work longer.”
The cost of public service occupational pensions is expected to increase from 1.1% of GDP in 2019 to 1.5% of GDP by 2040. However, the cost is expected to reduce thereafter with a cost of 0.9% of GDP expected by 2060 reflecting measures taken to mitigate costs.
ENDS
Notes for Editors
The Accrued Liability valuation was carried out on behalf of the Central Statistics Office who are required to compile a supplementary table showing the accrued liability of all funded and unfunded Irish pension scheme as part of the National Accounts, under EU regulation 549 / 2013.
The supplementary table on pension schemes was introduced as a requirement for all EU countries to allow for improved analysis and international comparability of existing pension systems within and between countries under the System of National Accounts (SNA, 2008) and European System of Accounts (ESA,2010).
The methodology and assumptions used for the valuation follow those recommended by Eurostat and the European Central Bank. The assumptions adopted broadly coincide with those produced by the European Commission for the purpose of the Ageing Report 2021 with the exception of the mortality assumptions. The mortality tables used reflect the mortality experience of pensioners of occupational pension schemes in Ireland.
The increase in the State’s liability from 2015 to 2018 can be largely attributed (€25bn) to a change in the assumptions, in particular to the 1% decrease in the annual discount rate underlying the calculations.
A discount rate is used to determine the present value of accrued retirement benefits, and when applied to estimate future pension benefits in the case of accrued-to-date entitlements, is the single most important assumption to be made in the modelling of pension schemes since its accumulated impact over many decades can be very large.
The increase in the State’s liability can be attributed to a number of other factors including the natural ageing of current and former employees. Importantly, benefit terms for public service employees have not been improved over the period.
The total actual expenditure on public service pensions amounted to €3.6bn in 2018, while member contributions and PRD (now know Additional Superannuation Contribution (ASC) amounted to approximately €1.4bn over the year.