Pensions is key issue in benchmarking exercise regarding public sector pay

The public service employer and the Irish Congress of Trade Unions have each made their opening submissions to the Public Service Benchmarking Body, which is undertaking its second major review of public service pay and is due to report in 2007. Determining the value of pension provisions is proving to be one of the more contentious issues.

In July 2006, the Public Service Benchmarking Body (PSBB) received the submissions on public sector pay of the main public service employer and the public services committee (PSC) of the Irish Congress of Trade Unions (ICTU). The PSBB has started work on a new pay benchmarking exercise that will result in a set of pay recommendations for the vast majority of public servants in the second half of 2007.

Both submissions revealed the core issues of concern for each of the two parties involved. It seems that the public service employers are seeking to curtail pay expectations. The PSC case, on the other hand, attempts to anticipate some of the main arguments made by the government acting as employer, particularly in relation to the potential for ‘discounting’ pay against valuable conditions of employment that may be better than those found in the private sector. The pensions system is the key area in this regard.

The PSBB was set up in 2000 to establish fair comparisons between the pay of public service workers and similar groups in the private sector. It replaced a system based on internal linkages and relativities.

On 1 July 2002, the PSBB issued its first report recommending a wide range of pay increases for public servants. The increases awarded by the PSBB are on top of pay rises agreed in the national wage deals that come under the umbrella of Ireland’s three-year social partnership agreements (IE0606019I). The exact timing of the PSBB increases, however, has to be agreed between the government, as the employer, and the various public sector trade unions.

Assessing market rates and job profiles

The public service employers’ submission calls for a rigorous assessment of what constitutes an appropriate market rate for the job. Furthermore, it emphasises that public service pay increases must avoid damaging competitiveness either ‘by provoking follow on increases’ or by ‘unduly increasing the overall cost of public service pay with consequent negative effects on taxation and the scope for necessary public investment elsewhere’.

The employers are not aware of any clear evidence of a significant upward drift in pay levels in the wider economy since the PSBB’s 2002 report and their submission states:

If the Benchmarking Body concludes that no increase is warranted in the pay of some or most or all of the grades which it is to examine, it should so report.

However, the PSC submission argues that overall pay rates in different sectors are relatively meaningless unless they take account of the occupational profile of those sectors. The examination should consider the actual jobs carried out by public servants under review with reference to corresponding jobs in the private sector, ‘rather than a theoretical construct’ across the two sectors that has ‘no relevance’ to the task of the PSBB.

Crucially, the trade union submission states that employers selected for comparison should be ‘good employers’, since the public service itself should be a good employer, in the sense that – while it may not pay the highest rates of remuneration – it should be among those that pay somewhat above the average rates.

Value of pension provisions

Public service pension provisions – as well as better than average family-friendly policies and relative job security – are the key mechanisms by which the government will try to dampen public sector wage expectations. Public sector pensions now cost close to €1.4 billion a year, or almost 10% of the total public sector pay and pensions bill of almost €15 billion for 2005.

The standard public service pension provides for 50% of earnings after 40 years’ service, plus a gratuity of 18 months of salary. While many public servants do contribute to their pensions, their contribution is relatively small and comes nowhere near the real cost of buying such a valuable stream of income in retirement.

The employer side believes that pensions are becoming more expensive for private sector employers and many companies are having difficulty in meeting their obligations under defined benefit schemes:

There is strong prima facie evidence that the relative value of public service pensions is greater now than was the case even in the recent past. The Benchmarking Body should ensure that full account is taken and appropriate adjustments made for the relatively greater value of public service pension terms when recommending pay rates.

The PSC attempts to counter the government’s argument in relation to the potential for ‘discounting’ pay against conditions of employment. It claims that the first PSBB report ‘explicitly took account of public service conditions of employment like security of tenure and pensions arrangements’.

In addition, the PSC points out that the first benchmarking body made a deduction from the initial pay rates suggested by the comparison between the public and private sectors to account for differences in pensions. This is a logical approach to the issue, ‘provided there is a clear difference involved’, the PSC suggests.

Further submissions

The PSBB will now hear from a variety of other parties, including individual trade unions on behalf of different categories of staff, and from the employer side in the various departments or bodies where they work.

Brian Sheehan, IRN Publishing