If Carlsberg did pensions it would hard pressed to better the Irish public sector. Last week, the Government supercharged public sector pensions, reinforcing the common perception of its timidity in the face of powerful public sector unions. In the run up to the budget, public sector workers close to retirement and queuing up to go early, fearful of rumoured tax on retirement lump sums, couldn’t believe their luck. Instead the Government boosted the unique pension package much further than is generally understood by enhancing early pensions and lump sums. The enhanced pension is immediately payable to over 50's together with 10% of the lump sum with the balance delayed until normal retirement age is reached. Our analysis shows that the result is a massive giveaway to public sector unions in an early retirement scheme exclusive to its constituents. We price the Governments largesse, measuring the enhanced benefits in the only accurate way - by reference to commercial market prices.

Before the budget a 50 year old earning a hundred grand a year with thirty years of service whose normal retirement age is 60 could exit with lump of €92,475 and a pension escalating in line with salary grade increases beginning at €23,400. In the open market a worker in the private sector would need to accumulate €1,121,951 in a pension fund to enjoy the same benefits. This is the commercial cost calculated on the day of the budget by reference to the cost of buying pensions. But by changing the rules that normally apply, the post-budget pension, in this example jumps 1.6 times to €37,500 escalating per year and the open market cost to a whopping €1,744,280. Even allowing for postponing most of tax free cash until normal retirement age under the new scheme, this is an increase of €622,328. In simple terms the saving in the difference between salary and pension by commuting the worker to a retiree earlier than normal is costing us all 6.2 times of his salary. Quite how this is value for money for taxpayers defies logic and smacks of a sleight of hand.

Notes: The Value as a Private Pension Fund includes tax free cash lump sums and is based on commercial prices on budget day. The example is based on a male normal retirement age 60, salary €100k p.a. The outcome is pro rata for lower salaries.

Multiplied across the numbers now expected to apply for the scheme the legacy may be to burden future taxpayers with billions more in pension costs.

The Government hopes to save the difference between current salary and pension payments but as our report shows, much like extending a mortgage term, the saving is a sham. In return for an immediate gain in cash flow, the long term cost to taxpayers is excessive. Once again the Government has fumbled the real issue which is inflated public sector pay and pensions and, when faced with thinning numbers on the active payroll, it has resorted to bribery masked in guff about patriotism. But there is nothing less patriotic than passing the cost of failure to future generations of taxpayers or more cowardly than concealing it in the smoke and mirrors world of pensions.