Speech
Speech at Second Sage: Public Service Pay and Pensions Bill 2017
From Department of Public Expenditure, NDP Delivery and Reform
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From Department of Public Expenditure, NDP Delivery and Reform
Published on
Last updated on
Delivered By Paschal Donohoe, T.D., Minister for Finance And Public Expenditure And Reform.
Dáil Éireann, 29 November 2017
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A Cheann Comhairle, Members of the House,
I move the Public Service Pay and Pensions Bill 2017.
This Bill seeks to implement the provisions agreed in the Public Service Stability Agreement 2018-2020 – or PSSA – earlier this year.
It does so in the context of our country’s continuing economic growth and within this Government’s policy of careful and strategic management of the economy.
Last month I presented my first Budget to this House as Minister for Finance.
That balanced Budget provided the funding for the 2018 provisions of this Bill.
It did so against the background of an economic recovery that few foresaw at the time that the Financial Emergency Measures were being passed through this House.
Economic growth is predicted to be 3.5 per cent next year, and employment levels are set to improve again next year.
Nobody should underestimate the extent to which those same Emergency Measures have contributed to the great improvement in our public finances.
The five FEMPI Acts between 2009 and 2013 made a vital contribution to the savings we needed to balance our books and restore our international credibility.
The savings also allowed us to begin in re-invest in our public services, re-invest in our infrastructure and re-invest in communities throughout the country.
The Acts entailed considerable sacrifices from workers across all levels in the public service and this is something that needs to be recognised and commended.
The FEMPI legislation also imposed reductions on contractor fees and on public service pensions, which I also acknowledge.
Two years ago, this House enacted the 2015 Act, which began the phased unwinding of FEMPI.
This Bill completes that not inconsiderable task.
But it does so in the same spirit of minimising risk and ensuring that we do not lose sight of the broader economic context of Brexit and other external risks.
This Bill proposes a way of repealing FEMPI that ensures, as far as is possible, that we will not need to return to such extraordinary measures.
This is about future-proofing public service pay and pensions in the context of the recent history of reductions to them.
This final FEMPI Bill also follows the progressive nature of its predecessors. The FEMPI reductions applied to all pay levels, but they impacted those on higher salaries to a much greater extent.
Similarly, in the unwinding, this Government is protecting the lower paid, who will see restoration much more quickly than more senior public servants.
Furthermore, the pay increases in this Bill are broadly in line with those taking place across the wider economy.
I will outline the exact nature of the pay measures shortly when I come to the main provisions of the Bill.
Our teachers, nurses, Gardaí and other public servants and their retired counterparts are deserving of the pay and pension restoration set out in this Bill, particularly after such a long period of wage restraint and reductions.
There is also a legal entitlement to that restoration, since the FEMPI Acts which significantly reduced their pay and pension entitlements were predicated on a financial emergency of unprecedented severity from which we have now, thankfully, emerged.
The phased, measured and sustainable path to restoration that this Bill provides is the best way to meet our legal obligation to repeal – but without returning us to unsustainable pay rates.
I will deal with this point further later in my remarks.
This summer, officials from the Department of Public Expenditure and from Government employers across the State entered into negotiations with unions and associations representing over 300,000 public servants.
Their aim was to conclude a satisfactory successor to the Lansdowne Road Agreement.
The outcome of these difficult talks was the new Public Service Stability Agreement 2018-2020.
The Agreement has been accepted by my colleagues in Cabinet and ratified by the Public Services Committee of the ICTU and other staff associations.
It builds on the foundations of not only the Lansdowne Road Agreement, but also of the Croke Park and Haddington Road Agreements.
In that sense, it represents continuity and stability.
And this is welcome.
In other important ways, the new Agreement represents change.
Perhaps most significantly, it provides that from 2019 onwards, the vast majority of public servants will pay an Additional Superannuation Contribution towards their pension.
This places their pension entitlement on a more sustainable footing going forward.
It is, therefore, a necessary and important step in terms of the ‘future-proofing’ I referred to earlier.
As in previous agreements, this Agreement also provides for a large number of specific reforms to help support our ongoing efforts to improve the services the State delivers.
Reform should not be something reserved for times of emergency; it has to be continuous and evolving – reflecting the ever-changing and dynamic world in which we live – and this Agreement provides for that.
Of course, the cost cutting measures FEMPI introduced would not by themselves have been enough to get this country back on the right track.
Without the collective agreements that underpinned the legislation, we could not have enjoyed industrial relations peace and all of the benefits associated with it at what was a very delicate juncture for our country.
This is why I am convinced that the collective approach is the only viable option and why this Bill seeks to incentivise adherence to the Agreement.
It is therefore vital that we ensure that those who have made a commitment to work with us are rewarded for that.
The Government believes in the collective approach as encapsulated in the PSSA and that is why we are now seeking to reflect that Agreement in the provisions of this Bill.
At this juncture, I am required by the Standing Orders of this House to state that this is a money Bill containing measures which have already been provided for in the Budget and it provides for the repeal of emergency legislation.
As such, the Bill has, with the full agreement of the House’s Business Committee, not been the subject of the usual pre-legislative scrutiny.
I would also ask the House to note at this point that both the Central Bank and the European Central Bank have been formally consulted in respect of this Bill and that the latter have published their opinion on their website. The sections relating to the Central Bank will be dealt with in detail at Committee Stage.
This is a substantial and complex piece of legislation, the majority of the measures in which are of a financial nature. It is divided into seven parts.
For the benefit of members I will now outline its main provisions:
Part 1 is a general, introductory section setting out the basic terms that will be used throughout, including ‘covered’ and ‘non-covered’ public servants.
It also provides for the repeal of the 2009 Act, so that the Pension Related Deduction will cease to apply to public servants as of 1 January 2019, as from that date the Additional Superannuation Contribution shall apply.
Part 2 is the most substantive part of the Bill – it provides for pay restoration for all public servants, supplementing the increases under the 2015 FEMPI Act.
By the end of the process outlined in this part, all of the FEMPI pay cuts will be undone.
Chapter 2 provides pay increases for all public servants covered by the PSSA as set out in that Agreement, as follows:
In 2018—
1% on the 1st of January;
and a further 1% on the 1st of October.
In 2019—
where the person’s salary does not exceed €30,000, 1% on the 1st of January;
and for all public servants under the PSSA, 1.75% on the 1st of September.
And finally, in 2020—
where the person’s salary does not exceed €32,000, 0.5% on the 1st of January;
and for all public servants under the PSSA, 2% on the 1st of October.
Chapter 3 provides the same pay increases for those not covered by the PSSA but at a slower rate.
Specifically, they will receive every pay increase I have just outlined exactly nine months after their ‘covered’ counterparts.
In addition, as section 21 sets out, they will not receive any incremental increases for the duration of the Agreement.
It is the Government’s ambition that every public servant will be covered by the PSSA.
The vast majority of public servants have subscribed to the collective approach agreed with their representatives and must be prioritised when it comes to further pay restoration.
Chapter 4 outlines how the measures I have just outlined will interact with the pre-existing commitments under the 2015 FEMPI Act.
Chapter 5 deals with those public servants for whom the pay measures in the PSSA will not have fully restored pay to pre-FEMPI levels.
The vast majority – everyone earning up to €70,000, who make up about 90% of the total public service – will have had their pay fully restored by October 2020.
But for the minority I am speaking about here, this Chapter will complete that process over a further time period.
There are two different cohorts covered by this Chapter: those earning between €70,000 and €150,000; and those earning over €150,000.
In both cases, the Bill provides that an Order must be made by the Minister for Public Expenditure and Reform specifying a date after 1 October 2020 (the date of the last pay increase) by which full restoration is to have taken place.
For those under €150,000, this date must be no later than 1 July 2021.
For those over that amount, it must be no later than 1 July 2022.
I would remind Members of three factors in relation to these measures.
Firstly, the legal entitlement of these individuals to this restoration.
Secondly, the fact that these individuals were proportionally much more severely affected by the pay reductions and are having their salaries restored at a much slower pace than those at lower salary levels.
And thirdly, that while their gross pay will be restored, the Additional Superannuation Contribution, that I will outline in a moment, will act to reduce ‘take home’ pay on a permanent basis.
Finally in relation to this Part, section 20 specifies that all members of the Government will be altogether excluded from this further restoration.
Moreover, the Government has decided to waive all of the restoration due under the PSSA.
The next part, Part 3, is shorter and concerns pensions.
As well as those currently working, the FEMPI Acts affected many public service pensioners.
And just as there is pay restoration, and a legal imperative to complete it, there must be further amelioration of the Public Service Pension Reduction, or PSPR, for those still liable for it.
This is done through the phased raising of thresholds, continuing the process begun under the 2015 FEMPI Act.
By end 2020 the vast majority of public service pensioners will no longer have any reduction to their payments.
For those still liable for the PSPR, the Minister for Public Expenditure and Reform must make an Order by 31 December 2020 specifying when it will cease to apply.
Part 4 is also about pensions, but in this case it is about how public servants contribute towards their pensions.
Since the very first FEMPI Act, eight years ago, public servants have paid a Pension-Related Deduction on all of their earnings.
This will continue until the end of next year, as set out in the 2015 FEMPI Act.
However, this Bill repeals the original 2009 FEMPI Act, so that no PRD will be charged after that date.
Instead, as provided for under the PSSA, the majority of public servants will pay an Additional Superannuation Contribution or ASC, from the 1st of January 2019 onwards.
This secures substantial funding towards the cost of public service pensions, amounting to approximately €546 million per annum from 2020 onwards.
That will be in addition to some €700 million already contributed on an annual basis.
This permanent source of revenue will help to defray the cost of providing pensions to public servants into the future and is necessary to place public service pensions on a more sustainable footing in the light of the significant accrued liabilities that exist.
Unlike the PRD, the ASC is only chargeable on pensionable pay.
ASC will apply differently depending on whether a public servant is a member of a standard accrual scheme, a fast accrual scheme or the Single Public Service Pension Scheme.
For those who joined fast accrual schemes before 2013, the ASC rates that will apply will be the same as the PRD rates.
For those in standard accrual schemes, the ASC rates will be more favourable than the PRD rates, as the threshold will be raised in 2019 and again in 2020.
And for those who are members of the Single Scheme, i.e. all new entrants to any part of the public service after 2012, the ASC rates will be more favourable again, reflecting the fact that, as the Report of the Public Service Pay Commission found, this Scheme is already on a more sustainable basis than those that preceded it.
For those not covered by the Agreement, a larger proportion of their salaries will be subject to ASC compared to covered workers until 2021.
But from 2021 onwards the same ASC rates will apply to both covered and non-covered public servants.
I am sure Members will appreciate that this is complex.
It is difficult to present in the time available here, all of the information regarding percentages and thresholds, which is far better conveyed and understood in tabular or in written form.
It is enough to say at this juncture that the effect of the ASC becoming a permanent feature of the pay and pensions landscape is that public servants will henceforth pay a fairer contribution for the pension they will eventually enjoy upon retirement.
That is what this part of the Bill achieves.
Part 5 places certain provisions of the FEMPI legislation on a permanent, non-emergency footing.
These provisions relate to the power to vary the fees paid to contractors, mainly health professionals, for services and goods rendered.
The exercise of such a power would of course only be possible where a contractual right to vary exists.
Parts 6 and 7 deal with transitional arrangements and miscellaneous provisions, including transitional arrangements for the payment of professional fees.
As part of these transitional arrangements and in the context of exiting the FEMPI legislative framework, the Minister for Health has announced that he intends to initiate a process of engagement in 2018, in consultation with my Department, with relevant representative bodies on service delivery, contractual reform and associated fees.
This process will aim to conclude a multiannual approach to fees, commencing in 2019, in return for service improvement and contractual reform and in line with Government priorities for the health service.
The repeal of the Financial Emergency legislation is an important milestone in the history of this State; just as the achievement of the Medium-term Budgetary Objective was in the recent Budget.
Our economy is recovering, but our society is not yet healed.
Future historians or economists might see this recovery, from their detached perspective, as in many ways a rapid turnaround, relatively speaking. However, I am conscious that it may not feel that way to those who have lived through it.
After all, by the end of the Agreement it will have been over ten years since the first FEMPI measures were introduced.
Notwithstanding that fact, a careful and gradual unwinding of these reductions is the only sensible way to proceed, given the fiscal constraints we operate within and the overriding priority for stability and sustainability in the public finances.
It is about balancing these requirements with our responsibilities to restore pay for the public servants who contributed so much to the economic recovery we are currently benefiting from.
This Bill, insofar as it can be achieved in today’s uncertain economic climate, provides certainty and closure for contractors, for pensioners and for public servants.
It also provides a level of future planning – through the introduction of the ASC – improving the long-term sustainability of public service pensions.
And lastly, it provides a phased series of modest and affordable pay increases over three years in a way that is fair to public servants and fair to the people of this country.
I look forward to hearing your views.
I commend this Bill to the House.
ENDS