A tale of two pensions
The focus on the huge pensions received by a tiny minority of public servants overlooks the fact that many who work in the public service will not be terribly well-off in retirement. By Enid O'Dowd.
Once upon a time two long-serving state employees, both aged 57, faced retirement. One chose to retire at 57; the other is negotiating early retirement for health reasons. The willing retiree never paid for his pension as a career civil servant who entered the public service long before a modified rate of PRSI was brought in for new entrants. The unwilling retiree paid a 6.5% pension contribution.
Unfortunately for the willing retiree - Dermot McCarthy - his departure hit the headlines because his package upset the begrudgers: a tax-free lump sum of €428,011, a special severance payment of €142,670, and an annual pension of €142,670. However, he is probably not that bothered by the attacks as he is entitled to the package under his contract. He is in good health and can expect lucrative offers as a result of the experience and contacts he has built up while employed by the state. After all, he worked closely with three Taoisigh on social partnership and bench marking. Or he can retire to the golf course or to helping good causes. His package gives him the financial freedom to do what he wants.
Our reluctant retiree is not so happy. How could he be when a combination of cancer and arthritis leaves him in constant pain and with no option but to negotiate early retirement from the state educational institution he has worked for since 1983? He loves his work with third-level students and they obviously like him - he has received a teacher of Excellence Award from his college. After all that service on a lecturer’s salary surely he should have a decent pension?
Some back-story is needed to set the context of his pension. The third-level institution for which he works has always employed a significant percentage of staff on a non-permanent basis, whether on an hourly basis or on eligible part-time contracts (EPT). Our reluctant retiree only got permanent status in 2002 after 19 years of service and union pressure. As an EPT part-time lecturer, he got inconvenient hours, making it difficult to get other paying work that would fit into his timetable. So he couldn’t build up pension entitlements in other employment, or build up significant savings. When he was finally made permanent, he expected to be placed at a point on the scale equivalent to the service he had already had with the institution. This service was then equivalent to almost ten years full-time. But no, then 48, he was placed at the bottom of the lowest pay scale as though he were a 21-year old graduate straight out of college. He asked about added pension years for ill-health, only to find that his entitlement for added years only goes to age 60, even though 65 is the normal retirement age, and the age he would have worked to had cancer not struck.
Interestingly, the willing retiree (who is healthy) got 67 days notional service added to his actual service to bring his service up to 40 years in order to qualify him for a full pension. Our reluctant retiree has a pension forecast for retirement in February 2012, giving him a pension of €17,474 pa. Not a lot for himself, a carer spouse and a child in third-level. It would have been less if, when he was appointed, he hadn’t used all his savings to buy back some of the years he worked on the ‘temporary’ basis. His lump sum is €45,079, a mere 8% of that received by his willing retiring ‘colleague’.
Public service pensions and lump sums are often attacked as being overly generous, and indeed some obviously are. But it needs to be emphasised that many public servants - like teachers, HSE staff and gardaí -pay towards their pensions, always did, and do not end up wealthy in retirement. Does our story end happily? It certainly does for the willing retiree. He ‘retires’ with a package based on a salary of €253,635, more than the salary of David Cameron (£142,500) and not much less than Barack Obama’s $400,000. Our reluctant retiree is taking advice to see if anything can be done, but is not optimistic. He reads that more senior civil servants are expected to take early retirement in February 2012 on very generous packages, to avoid new rules coming in which would reduce them somewhat. This news doesn’t help his health. He can only hope that the current tiered reductions in public service pensions are not increased in the budget. So for him, it’s probably not a happy ending.
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