An Oifig Buiséid Pharlaiminteach Parliamentary Budget Office

Public Sector Pay and Pensions: Features and Key Determinants

Briefing Paper 8 of 2018

Séanadh

Is í an Oifig Buiséid Pharlaiminteach (OBP) a d�ullmhaigh an doiciméad seo mar áis do Chomhaltaí Thithe an Oireachtais ina gcuid dualgas parlaiminteach. Ní bheartaítear é a bheith uileghabhálach ná críochnúil. Féadfaidh an OBP aon fhaisnéis atá ann a bhaint as nó a leasú aon tráth gan fógra roimh ré. Níl an OBP freagrach as aon tagairtí d�aon fhaisnéis atá á cothabháil ag tríú páirtithe nó naisc chuig aon fhaisnéis den sórt sin ná as ábhar aon fhaisnéise den sórt sin. Tá baill foirne an OBP ar fail chun ábhar na bpáipéar seo a phlé le Comhaltaí agus lena gcuid foirne ach ní féidir leo dul i mbun plé leis an mórphobal nó le heagraíochtaí seachtracha.

Disclaimer

This document has been prepared by the Parliamentary Budget Office (PBO) for use by the Members of the Houses of the Oireachtas to aid them in their parliamentary duties. It is not intended to be either comprehensive or definitive. The PBO may remove, vary or amend any information contained therein at any time without prior notice. The PBO accepts no responsibility for any references or links to or the content of any information maintained by third parties. Staff of the PBO are available to discuss the contents of these papers with Members and their staff, but cannot enter into discussions with members of the general public or external organisations.

Executive summary 4

Exchequer pay expenditure – 1998-2018 6

1998-2007: Economic growth and increasing public pay expenditure 7

2008-2009: Tax revenues fall significantly but public pay expenditure continues to grow 9

2010-2014: Introduction of FEMPI 11

2015-2018: Economic recovery and unwinding of FEMPI 13

2018-2020: The Public Service Stability Agreement 15

Cross-sectoral issues for public sector pay and pensions 17

New entrant pay equalisation 17

Pensions 20

Age profile 24

Conclusions on general issues for the public service pay bill 25

Health sector pay expenditure 27

Overall pay expenditure in the health service 29

Agency pay expenditure 32

Irish nurses in an international context 33

Conclusions on the health sector 36

Education sector pay expenditure 37

Demographics and education sector pay expenditure 38

The staffing schedule 38

First and second-level education 38

Primary sector 39

Post-primary 40

Conclusions on the education sector 42

Overall conclusions 43

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

1

Public Sector Pay and Pensions: Features and Key Determinants

Contents

Figures

Figure 1: Exchequer pay expenditure and tax revenue, 1998 to 2007, € billions 7

Figure 2: Average weekly earnings, 1998-2007 8

Figure 3: Public Service Numbers, 1998-2007, full-time equivalents 8

Figure 4: Comparison of Income Tax receipts and exchequer pay expenditure, € billions 10

Figure 5: Comparison of Income Tax receipts and exchequer pay expenditure, 2010-2014, € billions 12

Figure 6: Comparison of Income Tax receipts and exchequer pay expenditure, 2015-2018, € billions 13

Figure 7: Public Service Numbers, 2007 to 2017, full-time equivalents 14

Figure 8: Exchequer pensions expenditure 2011-2018, € millions 23

Figure 9: Age profile of the public sector, 2014 24

Figure 10: HSE Staff in Whole-Time Equivalents, 2006-2017 27

Figure 11: HSE pay expenditure by staff category 2011-2016, including nursing, € millions 29

Figure 12: HSE pay expenditure by staff category 2011-2016, excluding nursing, € millions 30

Figure 13: Change in WTE numbers in the health service, 2008-2018 31

Figure 14: Agency pay by category (€ millions) 32

Figure 15: Verification requests for Irish Nurses 33

Figure 16: Verification requests by country of origin, excluding Australia’s peaks

in 2008 and 2009 – 2004-2016 34

Figure 17: Cumulative Pay Expenditure Allocation by Sub-Sector, 2012-2018 37

Figure 18: Primary Teacher Pupils and Pay, 2006-2017, (€ millions) 40

Figure 19: Secondary Teaching Pay Expenditure, 2013-2018, € millions 41

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

2

Tables

Table 1: Exchequer pay expenditure and tax revenues, 2007-2009 9

Table 2: Exchequer pay expenditure and tax revenues, 2010-2014 11

Table 3: Change in tax receipts 2010-2014 and 2015-2018, € millions 14

Table 4: Bands and Rates for the Pension Related Deduction and the Additional

Superannuation Contribution 15

Table 5: Administrative Officer Salary Scale points 1-5 18

Table 6: Post-Primary Teacher Salary Scales points 1-5 19

Table 7: Notional employer contribution rate for public service pension schemes 21

Table 8: Distribution of different pension cohorts across the public service

as at 31st December 2015 25

Table 9: Changes in pay expenditure by staff category, 2011-2016 30

Table 10: Average cost per whole-time equivalent, 2011 and 2016 31

Table 11: Comparison of Staff Nurse/Registered Nurse Salaries in Ireland,

UK and Australia (PPP US Dollars) 35

Table 12: NHS High Cost Area Supplement (Irish salary included for reference) 35

Table 13: First and Second Level Expenditure breakdown, 2018, € 000s 39

Boxes

Box 1: Financial Emergency Measures Public Interest (FEMPI) 6

Box 2: Public Service Salary Scales 18

Box 3: Public Service Pension Schemes 20

Box 4: Pre-2013 vs. Single Scheme Pension Recurrent Benefits Comparison,

assuming all increments received 22

Box 5: Governance and Accounting Methods in the Health Service 28Pu

blic

Sec

tor

Pay

and

Pens

ions

: Fe

atu

res

and

Key

Det

erm

inan

ts

Public Sector Pay and Pensions: Features and Key Determinants

3

This briefing paper analyses the features and determinants of public sector pay and pensions. This is a broad area of

expenditure, encompassing the range of government policy. In Budget 2018, €17.4 billion of the €56 billion in gross

current exchequer expenditure was allocated to pay. Separately, pensions account for €3.1 billion. Together, pay and

pensions account for 36.6% of 2018’s current gross voted expenditure.1 Given its significant size, the Parliamentary

Budget Office considers that pay and pensions expenditure requires further detailed analysis.

In addition, at the end of 2017 the number of public servants employed by the State was nearing its pre-crisis peak

(320,387), at just under 317,500. If the rate of growth in the number of public servants in 2018 is close to its historical

average (2%),2 the number of public servants will exceed its pre-crisis peak by the end of 2018. However, while numbers

are nearing their pre-crisis peak, expenditure is still 15% below 2009’s peak level. Clearly, more than the number of

public servants is driving the level of expenditure on pay. Accordingly, the primary focus of this paper is on the other

key determinants of public sector pay and pensions expenditure. To that end, the paper examines four areas:

1. The historical evolution of exchequer pay expenditure 1998-2018;

2. General issues for the public sector pay bill;

3. Health sector pay expenditure; and,

4. Education sector pay expenditure.

Between 1998 and 2018 the public sector pay bill underwent significant changes. Until 2007, economic growth drove

an increase in both numbers (38%) and earnings (66%). As a result, expenditure grew by 145%. In 2008 and 2009,

the economic and fiscal crisis led to a rapid decline in tax receipts, but pay expenditure continued to grow,

reaching its peak in 2009.

Starting in February 2009, the government implemented a series of Financial Emergency Measures in the Public

Interest (FEMPI) Acts. Between 2010 and 2014, the amount of expenditure on pay reduced significantly, dropping

by 26%. Beginning in 2015, and continuing up to the end of the Public Service Stability Agreement 2018-2020, the

unwinding of most of the measures under FEMPI and renewed recruitment has brought pay expenditure to its current

level. IFAC estimates that between 2019 and 2021, with no policy changes, the cost of implementing the Stability

Agreement will be €940 million.3

This paper addresses general issues which may cut across the entire pay and pensions bill, impacting upon all sectors.

These issues include:

1. New entrant pay equalisation

2. Pensions; and,

3. Age profile of the public service.

1 SeeBox4ofPBOQuarterlyEconomicandFiscalCommentary,Q2of2018.

2 AverageGrowthRatebetween1999and2017.

3 Stand-StillScenarioforGovernmentSpendingintheMediumTerm2019-2023,IFAC,p.8.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

4

Public Sector Pay and Pensions: Features and Key Determinants

Executive summary

These three elements interact with each other. ‘New entrant pay equalisation’ is estimated by the Department of Public

Expenditure and Reform to cost €200 million. Expenditure on pensions has grown to €3.1 billion in 2017, and the age

profile of the public service signals increasing expenditure under that heading. In addition, increasing new entrant pay

will have long term consequences for the pensions of those affected, as these new entrants receive their pensions on

the basis of average lifetime earnings.

The following section of the paper discusses two key sectors for pay expenditure. Together, Health and Education

account for close to 75% of the gross expenditure on pay in Budget 2018. As a result, the PBO decided that in-depth

analysis of both was warranted.

In the Health Sector, the paper focuses upon the structure of the health workforce, and the implications this has for

pay expenditure. Since 2008, increases in the number of doctors and patient and client care staff have been offset by

decreases in the numbers of nurses and general support staff. Similar trends can be seen in Agency Pay, which reached a

new peak of €367 million in 2017. Given that increases in basic pay in 2015 were to be funded by a decrease in agency costs,

this is of particular concern. The paper also includes an analysis of the destinations of Irish nurses who emigrate for work.

Based on the salaries offered, adjusted for purchase power, it seems that in at least one of the two dominant destinations,

pay may not be the key driver for emigration. However, more data is needed on the reasons for nurses emigrating, e.g. the

precise location they emigrate to within those two countries, as large variations in pay rates exist within both.

In the Education sector, the link between pay expenditure and demographics is more direct. At both First and Second

Level, the number of mainstream teachers is set in relation to the number of pupils. The key issue for managing pay in

Education is effective workforce planning and the operation of a robust model for teacher supply and demand. In this

respect, there are concerns with the level of data available to planners in the Post-Primary Sector. The Technical Working

Group on Teacher Supply has noted that it is currently not possible to gather all the data necessary for “a reliable model

for the planning of teacher supply in the post-primary sector”.4 In addition, even with a reliable model, the desired ratio

of pupils to teacher remains a key factor for costs and should be clearly linked to educational outcomes.

Taken together, the information compiled for this briefing paper shows that public sector pay policy is nearing a critical

juncture. Combining the costs of the Public Sector Stability Agreement and the New Entrant Pay Equalisation, there is

already potential for an increase of €1.1 billion in public sector pay expenditure between now and 2021, ignoring the

impact of increments and the growing number of public servants.5 While one of these quantified costs is agreed to and

the other is still a subject of negotiation, they are both emblematic of the upward pressure being placed upon pay

expenditure in the public service.

Demographic changes will place increased ongoing demand on the health service in future years. On the other hand,

demographic demand will move through the three levels of Ireland’s education system in the medium term. Primary

schools students are estimated to peak in 2021 and Secondary in 2026.6 Managing the response to these demographic

changes will be a key challenge for future governments. In the past, expenditure was allowed to increase in such a way

that it left the Exchequer exposed when pro-cyclical tax revenues suffered a significant decrease. Strategic decisions

taken in the coming years will be key to avoiding a repeat of the same pattern.

4 StrikingtheBalance,TeacherSupplyinIreland:TechnicalWorkingGroupReport,TeachingCouncil,2015.

5 €940millionforthePSSAasperIFACand€200millionforNewEntrantPayEqualisationasperDPER.

6 PopulationandLabourForceProjections2017-2051,CSO.TheDepartmentofEducationhasslightlydifferentforecasts,seeProjectionsofFullTimeEnrolmentatPrimaryandSecondLevel2018-2036.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

5

This section of the paper will describe the development of Exchequer expenditure on pay over the twenty years from

1998 to 2018 and set it in the context of the resources available to cover those costs to the State. This period can be

broadly split into 4 phases:

1. 1998-2007: Economic growth and increasing expenditure on public pay;

2. 2008-2009: Tax revenues significantly decrease but expenditure on public pay continues to grow;

3. 2010-2014: Financial Emergency Measures in the Public Interest (FEMPI) is introduced;

4. 2015-2018: Economic recovery and unwinding of FEMPI.

Box 1: Financial Emergency Measures Public Interest (FEMPI)

There were five Financial Emergency Measures in the Public Interest (FEMPI) Acts that introduced measures to

increase the sustainability of public finances:

n FEMPIAct2009;

n FEMPIAct(no.2)2009;

n FEMPIAct2010;

n FEMPI(Amendment)Act2011; and

n FEMPIAct2013 (Enacted in June 2013, after the Haddington Road Agreement).

Taken together, these Acts implemented a number of changes to public service remuneration and the conditions

public servants worked under:

1. Salaries were reduced, with reductions ranging between 5% and 15% (a small number of office

holders received reductions of up to 20%), depending on salary levels.

2. A levy was raised on the wages of any public servant who was either a member of a public service

pension scheme, or entitled to benefit from one (the Pension Related Deduction).

3. The FEMPIAct2013, together with the Haddington Road Agreement, implemented additional working

hours, freezes in increments and additional reductions for those earning over €65,000 and reductions

to the pensions of those receiving over €32,500 (i.e. pensions tied to a salary of over €65,000).

As part of the unwinding of FEMPI, the FEMPIAct2015 provided an increase to the remuneration of public servants

and the Pension Related Deduction was reduced, among other changes that commenced the unwinding of the

FEMPI measures.

Different economic and fiscal dynamics were driving each of these phases of the Exchequer pay bill, and there

are lessons to be learned from the decisions that were made in the past. This is an ideal time to undertake this

review, for the following reasons.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

6

Public Sector Pay and Pensions: Features and Key Determinants

Exchequer pay expenditure – 1998-2018

Firstly, the Public Service Pay Commission was established in 2016 and presented its first report in May 2017.

Its second report is expected in 2018, which will focus specifically on recruitment and retention issues in the public

service. The overall purpose of the Commission is to “advise Government on Public Service remuneration policy”,

doing so “in the context of the FinancialEmergencyMeasuresinthePublicInterest[FEMPI]Acts2009-2015”.7

Secondly, the current trend of growth in pro-cyclical tax revenue is similar to the trend from 1998-2007, during which

time public sector pay expenditure underwent significant growth. Decisions taken now regarding public sector pay

should consider those taken in the past, and their eventual outcome. Figure 1 illustrates the trend of tax revenue

and pay expenditure over the period from 1998 to 2017.

Figure 1: Exchequer pay expenditure and tax revenue, 1998 to 2007, € billions

0

10

20

30

40

50

60

1998 19992000 2001 200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016 2017 2018

Billi

ons

0

10%

20%

30%

40%

50%

60%

70%

Pay Bill as a proportion of tax revenue (lhs) Tax Revenue (rhs)Exchequer Pay Bill(rhs)

Source:DPERDatabankandDepartmentofFinanceDatabank.

1998-2007: Economic growth and increasing public pay expenditure

This first period saw unprecedented growth in both tax receipts and public pay expenditure. From 1998 to 2007,

expenditure on pay increased by €10.8bn (145%). This growth was principally a result of increased pay rates (two-thirds

of the increase between 2002 and 2007, for example, was the result of pay increases).8 Although increased overall

numbers also played a role, it should be noted that during this period, numbers only increased by 38%, as Figure 3

shows. However, as Figure 2 shows, this growth in wages was roughly in line with growth rates in the wider economy.

Earnings across all industries grew by 61% between 1998 and 2007, while Public Sector earnings grew by 66%. At the

same time, the Consumer Price Index rose by 39%.9

7 TermsofReferenceforthePublicServicePayCommission,October2016.

8 ReportofthePublicServiceBenchmarkingBody,2007,p.45.

9 CentralStatisticsOffice,PSA01,QIJQ1andCPA01.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

7

Figure 2: Average weekly earnings, €, 1998-200710

1998 1999 2000 2001 2002 2003 2004 2005 2006 20070

200

400

600

800

1000

1200

1400

Public Sector (inc Health)All Industries (Private Sector)An Garda Siochana Education Civil Service

Source:CSO,TablesPSA01andQIJQ1.

Figure 3: Public Service Numbers, 1998-2007, full-time equivalents

1998 1999 2000 2001 2002 2003 2004 2005 2006 20070

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Source:DPERDatabank

10 Datasetuseddoesnotincludestatisticsonaverageearningsinthehealthsectorduringthisperiod.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

8

2008-2009: Tax revenues fall significantly but public pay expenditure continues to grow

The impact of the economic and fiscal crisis on tax receipts was significant – dropping from €47.25 billion in 2007 to

€33 billion in 2009; a 30% drop in just two years. This was not mirrored in the pay bill, which continued to grow, rising

by 10.5% in the same period. By 2009, and as a result of these two variables operating in opposite directions, Exchequer

pay expenditure had risen to 61% of tax receipts. Table 1 tracks tax revenue and exchequer pay expenditure from 2007 to

2009. Towards the end of this period (February and December 2009), the first two FEMPI acts were introduced, which

introduced the Pension Related Deduction (PRD) and an average 6.5% reduction in public service salaries.

However, the nature of pay expenditure in the public service – requiring collective agreement and legislation –

means that wide-ranging changes to enact reductions in costs take time to implement; as a result the trend in

pay expenditure reversed in 2010 rather than in 2009.

Table 1: Exchequer pay expenditure and tax revenues, 2007-2009

2007 2008 2009

Tax Revenue €47.2 billion €40.8 billion €33 billion

Exchequer Pay Expenditure €18.2 billion €19.3 billion €20 billion

Pay expenditure as a proportion of tax revenue 39% 47% 61%

Source:DPERDatabankandDepartmentofFinanceDatabank.

This paper will, at this juncture, move from charting pay expenditure as a proportion of all tax to as a proportion

of Income Tax11 only. Income tax has been chosen as a casestudy as it is the single largest tax head and it proved

possible to maintain a relatively stable inflow from it during the critical period of 2007-2014 (the economic and fiscal

crisis and the period of FEMPI’s implementation – see Table 2). The level of Income Tax corresponded closely to public

pay expenditure in 1998, but pay expenditure has deviated significantly as time passed. However, this is not a significant

feature of this analysis in and of itself, i.e. Income Tax is not a hypothecated tax devoted to the costs of public pay

expenditure – the Exchequer funds public pay expenditure through all taxation, borrowing etc. as necessary. However, as

the single largest tax head its relationship and its quantum relative to public pay expenditure is instructive and

important. Ultimately, however, what proportion of government revenues is devoted to public sector pay is a

Government policy decision.

11 Incometaxincludes,forexample,USC,InvestmentExitTax,etc.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

9

Figure 4 illustrates the trend in pay expenditure and Income Tax receipts from 1998-2010. At the beginning of the

period, pay expenditure and income tax receipts are close to each other in absolute terms. However, starting in 2001,

pay expenditure continues to increase linearly, as the rate of growth in Income Tax receipts falls. As a result of this, over

the period pay expenditure rises from 101% of Income Tax in 1998 to 169% in 2009.

Figure 4: Comparison of Income Tax receipts and exchequer pay expenditure, € billions

5

10

15

20

25

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100%

50%

100%

150%

200%

Pay Bill as a proportion of income tax (lhs) Exchequer Pay Bill (rhs)Income Tax Receipts (rhs)

Source:DPERDatabankandDepartmentofFinanceDatabank.

However, Income Tax and public service pay are not linked to each other in any meaningful way. Pay expenditure is not

drawn directly from Income Tax, and the intention of this comparison is not to suggest that such a link should be created.

As a result of measures to broaden the Income Tax base, income tax would be one of the more stable tax receipts over

the coming period of recession. Pay expenditure was being financed in part by the consumption tax receipts that would

deviate to a greater extent over the period of the economic and fiscal crisis. This compounded the dynamic tracked in

Table 1, where pay continues to grow for a period after taxes begin to collapse.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

10

2010-2014: Introduction of FEMPI

While tax revenues reacted to economic conditions, pay expenditure required legislative action and collective

agreement to address. As a result, it was after two years of decline in tax revenue that it proved possible to commence

significant reductions in the public sector pay bill. Table 2 shows the impact this enactment had on the public sector pay

bill, reducing it from 60% of tax revenue to 36%. By the end of 2014, the Exchequer pay bill was the lowest it had been

since 2004.

Table 2: Exchequer pay expenditure and tax revenues, 2010-2014

Tax 2010 2011 2012 2013 2014

Tax Revenue €31.7 billion €34 billion €36.6 billion €37.8 billion €41.2 billion

Exchequer Pay Bill

€18.7 billion €15.7 billion €15.3 billion €15 billion €14.7 billion

Proportion of Tax Revenue

59% 46% 42% 40% 36%

Source:DPERDatabankandDepartmentofFinanceDatabank.

Importantly, this period saw significant growth in Income Tax as the economy recovered, while Corporation Tax and

transactional taxes (e.g. VAT) saw smaller increases. This was likely a result of policy measures to widen the income

tax base taken during the recession. The measures12 taken after 2010 reduced the proportion of earners exempt from

Income Tax from 45% to 36%.13 Together, the measures reduced the entry point to the Income Tax net from €18,300 in

2008 to €16,500 in 2016 – consequentially, bringing the entry point below the minimum wage of €18,566.14 Figure 5

shows the impact these measures had, as Income Tax receipts rose back above the pay bill in 2013, illustrating a more

balanced relationship between Exchequer pay expenditure and sustainable tax receipts.

12 Awiderangeofbasebroadeningmeasuresweretakenbetween2009and2014,significantonesincludethereplacementoftheIncomeandHealthleviesbytheUniversalSocialCharge,reductionsinthevalueofincometaxbands,creditsandageexemptions,aswellasthereductionorabolitionofawiderangeofreliefs(e.g.MortgageInterestRelief ).

13 IncomeTaxReformPlan,DepartmentofFinance,p.6.

14 Ibid,IncomeTax,TaxStrategyGroup,2009,p.1,andEurostat

TheEurostatcalculationofIreland’sminimumwageiscalculatedas:HourlyRatex39hoursx52weeks.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

11

The effort to reduce the pay bill by €5.3 billion made up a significant proportion of the €16.6 billion budgetary

adjustment made between 2009 and 2014.15 These measures were a significant component of the fiscal consolidation

effort.

Figure 5: Comparison of Income Tax receipts and exchequer pay expenditure, 2010-2014, € billions

0

2

4

6

8

10

12

14

16

18

20

2010 2011 2012 2013 20140%

50%

100%

150%

200%

Pay Bill as a proportion of income tax (lhs) Exchequer Pay Bill (rhs)Income Tax Receipts (rhs)

Source:DPERDatabankandDepartmentofFinanceDatabank.

15 TheIrishExperience:FiscalConsolidation2008-2014,Bedogni&Scott,2017,p.5.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

12

2015-2018: Economic recovery and unwinding of FEMPI

The 2015 FEMPI Act commenced the unwinding of cost-saving measures, and this is reflected in the gradual increase in

pay expenditure. However, some sectors have not had the measures completely unwound. For example, general practice

is still operating under FEMPI cuts, to the value of an estimated €120 million per annum. These cuts have not been

restored, as the Minister for Health plans to negotiate the restoration as part of the new GP contract.16

Figure 6: Comparison of Income Tax receipts and exchequer pay expenditure, 2015-2018, € billions

0

5

10

15

20

25

2015 2016 2017 20180%

50%

100%

Pay Bill as a proportion of income tax revenue (lhs) Exchequer Pay Bill (rhs)Income Tax Receipts (rhs)

Source:DPERDatabankandDepartmentofFinanceDatabank.

Figure 6 illustrates that this period is the first time since 1998 that income tax and public pay expenditure have followed

a similar trend. However, at present there are new pressures on public sector pay, which will be discussed in the next

section of this report. In addition, the staffing level of the public service is now returning towards pre-crisis levels, with

numbers reaching nearly 317,500 in 2017. The only year with a higher number of public servants was 2008, when there

were just under 320,400 (see Figure 7). This paper, when addressing public sector numbers (but in that context only)

includes certain cohorts of public servants (principally Local Authority staff ) who are not funded from the Exchequer and

are therefore not encompassed within the Exchequer pay bill.

16 ResponsebyMinisterforHealth,SimonHarristoBarryCowenT.D.,ParliamentaryQuestions144&145,25April2018.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

13

Figure 7: Public Service Numbers, 2007 to 2017, full-time equivalents

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017200,000

220,000

240,000

260,000

280,000

300,000

320,000

340,000

Source:DPERDatabank

Another key factor to consider is that measures were taken to broaden the tax base, especially the Income Tax base, and

it may be more challenging to broaden it again as significantly in the future. This is evident when the change in tax

receipts 2010-2014 and 2015-2018 (as forecast) are compared, and particularly so in the earlier period (see Table 3).

Table 3: Change in tax receipts 2010-2014 and 2015-2018, € millions

Tax 2010-2014 2015-2018

Income Tax €5,881 62% €1,650 32%

Value Added Tax €1,052 11% €1,359 26%

Corporation Tax €691 7% €1,330 26%

Excise Duty €313 3% €634 12%

Capital Gains Tax €214 2% €157 3%

Other €160 2% €63 1%

Local Property Tax €491 5% €7 0%

Stamp Duty €726 8% -€65 -1%

Source:DepartmentofFinanceDatabank.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

14

In 2010-2014, income tax made up the overall majority, 62%, of the increase in tax receipts. While between 2015

and 2018 this trend reversed so that Income Tax made up only 32% of the change. This current situation is the context

for the remaining sections of this paper, which examine a number of both general and sectoral issues which may place

upward pressure on the public sector pay bill.

2018-2020: The Public Service Stability Agreement

Between 2018 and 2020, the Public Service Stability Agreement will provide increases in the basic pay of public servants

of between 5.87% and 7.46%. In addition, over the period the Pension Related Deduction will be reformed into an

Additional Superannuation Contribution (ASC). The ASC will have a slightly more complicated model, as different rates

will apply for members of the Single Public Service Pension Scheme (see Box 3), in recognition of its lower cost to the

State. In addition, the deduction paid by members of the fast accrual schemes (i.e. pension schemes where the pension

is accrued faster, e.g. Gardaí and Defence Forces) will not be changed and will remain under the current system. Table 4

sets out these bands, and how they change over time.

Table 4: Bands and Rates for the Pension Related Deduction and the Additional Superannuation Contribution

Members of the Single Public Service Pension Scheme

Current System 1 January 2019 1 January 2020

Band Rate Band Rate Band Rate

€28,750 0% €32,000 0% €34,500 0%

€28,750-€60,000 10% €32,000-€60,000 6.66% €34,500-€60,000 3.33%

Over €60,000 10.5% Over €60,000 7% Over €60,000 3.5%

Pre-2013 Pension Scheme Members

Current System 1 January 2019 1 January 2020

Band Rate Band Rate Band Rate

€28,750 0% €32,000 0% €34,500 0%

€28,750-€60,000 10% €32,000-€60,000 10% €34,500-€60,000 10%

Over €60,000 10.5% Over €60,000 10.5% Over €60,000 10.5%

Source:PublicServicePayandPensionsAct(2017).

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

15

While these changes are estimated to cost €887 million between 2018 and 2020,17 the long term impact this change

will have on the net public pay bill is difficult to calculate. For example, a pre-2013 Pension Scheme Member with

pensionable salary of €60,000 would pay €2,550 in the Additional Superannuation Contribution in 2020, while a Single

Scheme member would pay €815.85 in the same period. It could be argued that this is more equitable, given the lower

comparative cost (see Table 7 on page 17). At the same time, because the PRD is recorded as income, this will serve to

increase net expenditure while not affecting gross expenditure, as this Appropriation-in-Aid falls relative to pay

expenditure.

17 ‘MinisterDonohoewelcomesPublicServicesCommitteeofICTUendorsementofPublicServiceStabilityAgreement2018-2020’,18September2017,DepartmentofPublicExpenditureandReform.IFACestimatesitwillcostanother€230millionin2021,seeStand-StillScenarioforGovernmentSpendingintheMediumTerm.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

16

This section will discuss some cross-sectoral issues that impact upon the public sector pay bill. Three cross-cutting

issues have been identified in this paper:

n New Entrants;

n Pensions; and,

n Age Profile.

New entrant pay equalisation

The issue of new entrant pay equalisation applies to those hired after 2011. After January 2011, those hired were put on

new salary scales with salaries reduced by roughly 10% at each point. This was partially changed in 2013, when most

of the entry grades were combined into a single salary scale with additional points on the salary scales which had the

effect of decreasing entry salaries (see Box 2: Public Service Salary Scales for more detail). Until 2013, this meant that

initially, someone hired after 2011 would be paid 10% less throughout their career, in an effort to deal with long term

sustainability. While from 2013 onwards, those hired would take two years longer to reach the same point of the

salary scale.

This issue was considered in Section 11 of the PublicServicePayandPensionsAct2017, which said that the

“Minister shall … prepare and lay before the Oireachtas a report on the cost of and a plan in dealing with pay

equalisation for new entrants to the public service.” Fulfilling this requirement, the Minister for Finance and Public

Expenditure and Reform lay the report “ExaminationofRemainingSalaryScaleIssuesinRespectofPostJanuary2011

RecruitsatEntryGrades” before the Oireachtas. This report presents analysis of the new entrant issue and quantifies

both the number of employees affected and the costs that would be incurred by increasing the salary scale position

of the entrants hired after 1 January 2011 by 2 points. This increase is not expected to result in any additional working

hours, staff or productivity gains.Pu

blic

Sec

tor

Pay

and

Pens

ions

: Fe

atu

res

and

Key

Det

erm

inan

ts

17

Public Sector Pay and Pensions: Features and Key Determinants

Cross-sectoral issues for public sector pay and pensions

Box 2: Public Service Salary Scales

Most public service salary scales contain a number of points. Each of which has a corresponding salary level.

In normal practice, new hires enter at the bottom of the scale (though there were some exceptions to this, e.g.

Teachers pre-Jan 2011 entered at different points on the scale depending on their education level when entering

the profession). Then, after each year of satisfactory service, the staff member moves up one point of the scale

(again, there are exceptions to this rule).

The initial cost-reducing measure taken in 2011 was to create a second salary scale for each entry grade, with the

salary level cut by 10% at each point. New entrants were hired on this salary scale, which was 10% lower at each

point, until the Haddington Road Agreement. Existing staff would remain on the previous salary scale. This meant

that staff of the same rank and doing similar work would have quite different salaries, even if they had similar

levels of experience.

In the Haddington Road Agreement (2013), most (exceptions include Teachers – discussed below) of these reduced

salary scales were combined into the existing pre-2011 salary scale by adding 2 points to the bottom of each scale

(see Table 5). This removed the 10% reduction further up the scale. However, this also meant that new hires would

need two years of service before they reached the bottom of the original salary scale. For staff hired after 2013 this

also has a long-term impact upon their pension entitlements due to the introduction of the Single Public Service

Pension Scheme.

Table 5: Administrative Officer Salary Scale points 1-5

1 2 3 4 5

Pre-Jan 2011 €33,247 €36,194 €39,967 42,838 €45,711

Post-Jan 2011 €29,922 €32,575 €35,970 €38,554 €41,140

Post-HRA Merge €29,922 €32,575 €33,247 €36,194 €39,967

Post-Jan 2018 €31,533 €33,911 €34,589 €37,566 €41,377

Source:ExaminationofRemainingSalaryScaleIssuesinRespectofPostJanuary2011RecruitsatEntryGrades

Not all salary scales were combined in this way in 2013; one notable exception being the different salary scales

for Teachers. There are two salary scales for teachers, one for pre-2011 entries and one for post-2011 entries.

Adding to this complexity, those hired between 1 January 2011 and 31 January 2012 also may receive

Qualification Allowances, with a value of between €591 and €2,458.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

18

Table 6: Post-Primary Teacher Salary Scales points 1-5

1 2* 3** 4 5

Pre-Jan 2011 (inc. Degree Allowance)

€39,061 €39,828 €40,907 €41,990 €43,669

Post-Jan 2011 €35,958 €37,430 €39,110 €40,957 €42,261

* TeacherswithaB.Ed.startedatpoint2onthepre-Jan2011salaryscale

** Teacherswithapost-graduatequalificationstartedatpoint3onthepre-Jan2011salaryscale.

The Department of Public Expenditure and Reform’s (DPER) report estimates the costs of moving all new entrants

up two-points of the salary scale at €200 million. Roughly 84% of this cost is as a result of the Health and Education

Sectors, which make up 81.5% of the staff affected. However, one issue with this estimate is that the demand of

Education sector representatives is not that new entrants be moved 2 points up the second scale, but that they receive

the same level of pay as those hired before 2011 – i.e. the abolition of the second scale. Another issue is the question of

qualification allowances, which range from €591 to €2,458 for those hired before 1st February 2012. Those hired since

do not have access to these allowances, and the cost of restoring these is not included in DPER’s estimate. Without more

detail about the educational attainment of these teachers, the likely cost cannot be estimated, but using the minimum

qualifications a teacher is likely to have, and the maximum, a range can be calculated – from €9.5 million to €39.4

million annually.18

Therefore, depending on the outcome of negotiations with the unions representing teachers, the sum of €200 million

may underestimate the cost of restoring new entrant pay.

Another issue that has not been set out in detail is how future entrants to the public service will be treated. It is not

yet clear whether the proposal includes abolishing the bottom two points of the salary scales for future entrants.

The ongoing cost of new entrant pay restoration would be extremely difficult to estimate:

1. Some of the staff who receive the additional pay will be promoted, negating the additional cost;

2. Depending on the way the restoration is enacted, new entrants may be hired at a higher pay level

in future, increasing the cost of new hires; and,

3. As many of these staff will be members of the Single Public Service Pension Scheme, which bases the retirement

benefit of staff on their average lifetime earnings, it will marginally increase the cost to the Exchequer of their

pensions.

This means that any estimate of the ongoing cost is highly reliant on the behaviour of new entrants, levels of turnover,

number of promotions and both the method of applying the pay restoration to future new entrants and the level of new

hires in future.

18 €9.5millionistheminimumifall16,054teachersaffectedhadapassgradeintheirH.DipinEd.,and€39.4millionwouldbetheallowancesifallteachershadH.Dip.andDoctorates.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

19

Pensions

The most notable change made in recent years regarding public service pensions was the introduction of the ‘Single

Scheme’ pension for new entrants after 1 January 2013. This means that when examining the liability of public pensions

there are two broad cohorts who must be considered:

1. those hired before 2013; and,

2. those hired from that year onwards.

Additionally, among those hired before 2013, there are two important groups – those hired before 1995

and those hired after that year.

Box 3: Public Service Pension Schemes

While there are a number of different groups within the existing public service pension framework, the largest

distinction is between the pre-2013 pension schemes and the Single Scheme.

Prior to 2013, there was no single public service pension scheme but a range of sector-specific schemes. In

general, beneficiaries received 50% of their final salary, or the average of their salary over the final three years (if

promoted recently) of their employment as their retirement income, with a lump sum of one and a half times the

final average salary (e.g. pension accrued at 1/80 of salary per year up to 40/80 and lump sum accrued at 3/80 per

year up to 120/80).

The ‘Single Scheme’ introduced in 2013 made important changes to this system, including:

n Pension payments equal to half of career average income, adjusted for CPI.

n A lump sum payment equal to one and a half times average career earnings, adjusted for CPI.

The key difference in relation to the Single Scheme is that these benefits are accrued each year, and the pension

will be reflective of average lifetime income, not average career-endincome. These benefits accrue over forty

years, and retirees with less than forty years of service will receive pro-rata proportions of the payments.

These different pension schemes have different compulsory retirement ages:

n Pre-1995 – 65;

n 1995 to 2004 – 65;

n 2004-2012 – No compulsory retirement age; and,

n Single Scheme – 70.

A Bill is currently before the Oireachtas to amend the compulsory retirement age to 70, and to give the Minister for

Public Expenditure and Reform the power to raise this age up to a maximum of 75.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

20

An actuarial review of accrued commitments under the two pension schemes was completed by DPER in March 2017.

A key output of that actuarial review was to quantify the employer contribution rate for public service pension schemes,

and compare them to private sector jobs of a similar ‘size’. This was to quantify two different issues – the premium

received by public servants compared to private employees in pension provision and the difference between pre-2013

pension scheme members and members of the ‘Single Scheme’. This was carried out to inform the the Public Service Pay

Commission – specifically when examining the difference between public and private sector employment benefits.

Table 7: Notional employer contribution rate for public service pension schemes

Pre-2013 entrants. Post-2013 entrants.

Public Service 29% 9%

Private Sector 11% 7%

Differential (excluding PRD) 18% 2%

Pension Related Deduction (PRD) 5% 5%

Source:ActuarialReviewofpensionprovisionintheIrishPublicServiceandacomparisonwiththeprivatesector,DPER.

As Table 7 shows, the reform of public service pension schemes has a marked impact on the cost of the scheme to

employers. Notably, the costs provided by DPER’s actuarial report does not account for Pension Related Deduction (PRD)

– one of the measures implemented during the recession to decrease the cost of public service pay. This means that in

the case of pre-2013 entrants, the premium is 18% if PRD is not taken into account, but 13% when it is. In the case of

post-2013 entrants, the 2% premium becomes a 3% discount when PRD is included in the calculations.

The relevance of this costing comparison for public pay expenditure is relatively simple – the more costly pre-2013

contingent will be the majority of retirees in the short to medium term. This group contained 243,000 working public

servants in December 2015.19 The difference in costs that this group represents can be illustrated by examining specific

case studies (see Box 4).

19 ReportofthePublicServicePayCommission,May2017,p.37.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

21

Box 4: Pre-2013 vs. Single Scheme Pension Recurrent Benefits Comparison, assuming all increments received

Case Study 1: Entry as Clerical Officer, retiring as Executive Officer

Assuming a staff member serves for forty years, at the following ranks:

n Years 1-14: Clerical Officer;

n Years 15-40: Executive Officer.

At the end of this career, a member of the older scheme would receive 50% of their final salary, which equates

to €24,733 annually and €74,198 in a lump sum payment.

In the case of a Single Scheme member, the accumulated benefit by the end of this career would be €21,849 and

€66,554 (no CPI applied in either case) in a lump sum.

Difference: €2,883 or 11.7% annually and €7,644 or 10.3% in the lump sum.

Case Study 2: Entry as Administrative Officer, retiring as Principal Officer

Assuming a staff member serves for forty years, at the following ranks:

n Years 1-10: Administrative Officer;

n Years 11-37: Assistant Principal Officer;

n Years 38-40: Principal Officer.

At the end of this career, due to being promoted within the last three years, a member of the older pension scheme

would receive 50% of the average of their last three years’ service or 447,629, or:

(€91,943 + €95,441 + €98,391)X

40

3 80

In addition, this person would receive a lump sum of €142,888 (the above number multiplied by three).

In the case of a member of the Single Scheme, the accumulated benefit over this career would be equal

to €36,750 (no CPI applied in either case). This person would receive a lump sum of €109,224.

Difference: €10,879 or 22.8% annually, and €33,663 or 23.6% in the lump sum.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

22

Case Study 3: Entry as Administrative Officer, retiring as Principal Officer

Assuming a staff member serves for forty years, at the following ranks:

n Years 1-5: Administrative Officer;

n Years 6-15: Assistant Principal Officer;

n Years 16-40: Principal Officer.

At the end of this career, a member of the older pension scheme would receive 50% of their career-end salary, or

€52,254.

In addition, this person would receive a lump sum of €156,761 (the above number multiplied by three).

In the case of a member of the Single Scheme, the accumulated benefit over this career would be equal

to €43,419 (no CPI applied in either case). This person would receive a lump sum of €129,304.

Difference: €8,835 or 16.9% annually and €27,457 or 17.5% in the lump sum.

In different cases, the key determinant of the difference in cost between the pension schemes will be the level

of promotion the staff member receives, and how late in their career those promotions occur.

The overall gross expenditure on public service pensions has increased by €253 million between 2011 and 2017. With a

total cost of €3.1 billion in 2017, this represented a 8.8% increase over expenditure in 2011 (see Figure 8). While the

Case Studies in Box 4 show that the Single Scheme will result in lower costs than previous schemes, this is not likely to

impact upon costs in the near future (see Age Profile section).

Figure 8: Exchequer pensions expenditure 2011-2018, € millions

2011 2012 2013 2014 2015 2016 2017 20182,500

2,600

2,700

2,800

2,900

3,000

3,100

3,200

Gross pension expenditure Linear Trendline

Source:DPERDatabank

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

23

Age profile

A key variable driving the growth of pension expenditure is the age profile within the Public Service. Public sector

pension expenditure cannot be expected to grow linearly if the size of individual age-cohorts within the public sector is

not equally distributed. As Figure 9 shows, the distribution of public sector employees is heavily weighted above 40

years of age. In 2014, 73% of public servants were over 40, of which 44% were over 50.

This top-heavy age profile means that a large number of retirements are likely to occur in the public service over the next

two decades (considering the figures are from 2014, it can be assumed that many of those in the 40-49 age bracket have

now moved up to 50-54). The over-50s in 2014’s figure represent 127,443 whole-time equivalents which are likely to

retire in the next two decades.20 This could place pressure on public finances, as these employees will mainly

be retiring under the terms of the more expensive pre-2013 pension regime.

Figure 9: Age profile of the public sector, 2014

Under 30 30-39 40-49 50-54 55-59 60+0%

5%

10%

15%

20%

25%

30%

Source:CivilServiceRenewalPlanBackgroundData

An important aspect of this age profile is that people at different points of this age profile will have significantly different

pension provisions. Table 8 provides a breakdown of FTE’s (as opposed to headcounts) across the public service. To fully

understand the consequences of this age profile for pension expenditure, it is necessary to examine the different

pension models discussed earlier in this section.

20 DPERDatabank.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

24

Table 8: Distribution of different pension cohorts across the public service, as at 31st December 2015

FTE Average Age (Years)

Average Service (Years)

Average Basic Pens. Salary

(€)

Pre 1995 66,590 53.3 30 54,559

Post 1995, Pre 2004 97,994 45.9 16 46,550

Post 2004 96,806 39 8.1 44,330

Single Scheme 36,809 34.2 1.1 35,337

Total 298,199 43.8 14.7 46,234

Source:ActuarialReviewofPublicServiceOccupationalPensionsinIrelandasrequiredbyEURegulation549/2013

It remains very difficult to estimate the likely future cost of public pensions, as a wide range of variables will impact

upon the eventual cost of these pensions:

n Take-up of Cost Neutral Early Retirement (option to retire early with benefits reduced accordingly);

n Promotions and/or other salary increases between now and end of career;

n Life expectancy of staff after retirement.

Conclusions on general issues for the public service pay bill

Setting aside the issue of recruitment policy in relation to the number of public service employees and/or composition

by sector, the three issues that will impact upon every sector of the public service pay and pensions bill in the coming

years and decades are:

1. New Entrant pay equalisation;

2. increasing pensions expenditure; and

3. a changing age profile.

The cost of just under €200 million provided by DPER for new entrant pay equalisation may not capture the cost of the

demands that have been made, and this figure may move upwards when negotiations are complete. These negotiations

will also have an impact – albeit relatively small – on pension costs going forward, as the average lifetime earnings of

affected staff increase.21 However, the more significant ramification of this decision will be how it affects those recruited

in the future, and what long-run impact this has on overall pension entitlements for public servants.

Pensions have historically been relatively minor in comparison to the overall pay bill, and while there is expected to

be a large increase under this heading in absolute terms, their position compared to the overall pay bill is not likely to

increase drastically. Based on their current pensionable salary, the entire pre-1995 cohort would account for €1.8 billion

annually in pension expenditure, and the incurrence of this additional expenditure is likely to be spread over several

years, if not decades.

21 Thenetimpactofthischangewilldependheavilyontheactualrolloutofthechanges.Thehighestincreasewouldbeintheeventofanimmediate2-pointincrease,whilestaggeredincreaseswouldlessenthiseffect.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

25

The integration of the state pension into the public service pension has resulted in drastically reduced additional costs,

as the state pension would currently account for 54.5% of the pension cost of post-1995 staff’s full pensions, though

this share will fall as these staff continue their careers and earn increments and promotions.

The implementation of the ‘Single Scheme’ Pension system is likely to make pension costs more sustainable in the more

distant future, as staff paid these pensions are likely to accrue significantly smaller pension benefits than their

predecessors over a normal career.

Finally, the age profile of the public service and the significant number of retirements forecast over the next two decades

provides an opportunity to review the overall number of public servants employed and their sectoral composition.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

26

In 2018, pay expenditure under Vote 38 (Health) makes up €7.1 billion of the €17.7 billion total gross pay expenditure,

or roughly 40% of the total.22 This section of the paper will track development in the health sector specifically, agency

pay in particular and conclude with a short case study of Irish Nurse salaries in an international context (of particular

interest as Nurses make up the single largest staff category in both whole-time equivalents and expenditure terms). Box

5 summarises some of the information sources used.

Figure 10 shows how the staffing of the Health Service Executive has changed over the past decade. Following the

economic and fiscal crisis, the number of whole-time equivalents employed in the health service decreased to a low

point of 97,000 in 2014. The latest data available, for March 2018, shows the number of whole-time equivalents to be

115,960, its highest ever level.23 On the other axis, the figure shows that the overall expenditure on pay has followed a

similar trajectory, including a period of unusually large growth in expenditure of 20.3% between 2006 and 2009. In

comparison, between 2009 and 2017, expenditure grew by 1.8% (with a drop of 8.9% in between). Given that numbers

and expenditure seem to track each other quite closely, it would not be unreasonable to expect that 2018 is likely to

record the highest level of expenditure on pay in the history of the HSE.

Figure 10: HSE Staff in Whole-Time Equivalents, 2006-2017

4,2504,3754,5004,6254,7504,8755,0005,1255,2505,3755,5005,6255,7505,8756,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20172016 03/201885,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000

Sta� (lhs) Pay Expenditure (rhs)

€millions

Source:StaffDetails:National Service Plans 2007-2018andManagement Data Report March 2018.Expenditure:HSE Annual Financial Statements 2006-2017.

22 DPERDatabank.

23 ManagementDataReportMarch2018,HSE,p.128.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

27

Public Sector Pay and Pensions: Features and Key Determinants

Health sector pay expenditure

Box 5: Governance and Accounting Methods in the Health Service

The governance framework of the Health Service in Ireland combines a variety of legal, administrative and

governance structures to ensure the accountability of the Health Service to the Government and the Houses of the

Oireachtas. In 2014, these structures were changed to disestablish the Vote of the HSE and place the expenditure

of the HSE within the Vote of the Department of Health.

In this structure, the Dáil grants voted expenditure under Vote 38, the Department of Health sends the HSE a

LetterofDetermination, and the HSE produces the National Service Plan within 21 days, based on the ceiling for

net expenditure given in that LetterofDetermination. Throughout the year, the HSE publishes a monthly report

detailing some financial and performance data. In the following year, the HSE produces Annual Financial

Statements (its accounts) and the Department of Health prepare the Appropriation Account for Vote 38.

This governance arrangement creates a structure composed of several different documents, based on different

accounting standards. For estimating expenditure levels in any given year the key difference is that some

documents are prepared on a cash basis, while others are prepared on an accruals basis. In an accruals

system, expenditure is recorded when it is committed to, while in cash accounting, it is only recorded

when it is actually incurred.

These documents are prepared on a cash basis:

n Estimates for Voted Expenditure (ExpenditureReport, RevisedEstimatesforPublicServices,

FurtherRevisedEstimates and SupplementaryEstimates);

n Appropriations Accounts.

Until 2014, these documents were prepared by the HSE, because it had its own Vote. From 2015 onwards,

the Department of Health includes the voted allocations for the HSE in Vote 38.

Separately, as required by legislation, the HSE prepares documents on an accruals basis:

n NationalServicePlan;

n AnnualFinancialStatements;

n Monthly reports on management and performance data.

In this paper, where the overall health pay bill is referred to, this figure is taken from the December Management

Data Report of the corresponding year. Where the expenditure is specified at the level of Staff Category, this is

taken from the Annual Financial Statements. When staff categories are presented as a total, this is as a proportion

of the total in the Annual Financial Statements, not from the December Management Data Report.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

28

Overall pay expenditure in the health service

Vote 38, the ‘Health Vote’, includes €7.1 billion of pay expenditure in 2018. However, most of the detail on this area is

provided in the documents published by the Health Service Executive, which reports nursing as the largest staff category

by a very significant margin, in both numbers and cost. Figure 11 illustrates the trend between 2011 and 2016 by staff

category, which shows that expenditure reached its lowest point in 2014, but has since returned to a slow upwards

trajectory.

Figure 11: HSE pay expenditure by staff category 2011-2016, including nursing, € millions

201320122011 2014 2015 20160

200

400

600

800

1,000

1,200

1,400

1,600

Medical/Dental Health/Social Care Professional Management (Administration)Patient and Client Care Superannuation Nursing

Source:AnnualFinanceStatements2011-2016

Figure 11 includes Nurses, who make up 29% of the total figure. When the total for that category is included in the figure,

it obscures the developments in other staff categories – therefore, to more clearly illustrate the way other staff

categories developed over the period Figure 12 excludes that category.Pu

blic

Sec

tor

Pay

and

Pens

ions

: Fe

atu

res

and

Key

Det

erm

inan

ts

Public Sector Pay and Pensions: Features and Key Determinants

29

Figure 12: HSE pay expenditure by staff category 2011-2016, excluding nursing, € millions

201320122011 2014 2015 2016

Medical/Dental Health/Social Care Professional Management (Administration)Patient and Client Care Superannuation

500

550

600

650

700

750

800

850

Source:HSEAnnualFinancialStatements2011-2016.

Figure 12 illustrates that:

n Medical/Dental and Patient and Client Care experienced only minimal drops up to 2013, and since then have

risen beyond their 2011 levels;

n Conversely, Health and Social Care Professionals experienced a sharp drop from 2013 to 2014; and

n Management and Admin dropped from €580 million to €531 million, before rising again to €584 million by 2016.

Table 9 summarises the net change in each staff category between 2011 and 2016. These changes can be seen in

financial terms here – Medical/Dental and Superannuation experienced the largest increases by a significant margin.

Patient and Client Care and Management/Administration experienced more modest increases.

Table 9: Changes in pay expenditure by staff category, 2011-2016

Staff Category Change 2011-2016 Percentage

Medical/Dental €77,281,000 10.3%

Nursing -€22,930,000 -1.5%

Health/Social Care Professional -€87,523,000 -13.8%

Management/Administration €4,093,000 0.7%

General Support Staff -€17,285,000 -4.8%

Patient and Client Care €15,874,000 2.4%

Superannuation €89,528,000 15.8%

Source:HSEAnnualFinancialStatements2011-2016

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

30

Taken in isolation, the headline figures for expenditure do not provide much insight into the development of pay

expenditure over time. Therefore, Figure 13 has been provided to give a breakdown of the changes in whole-time

equivalents for each staff category between 2008 and 2018.

Figure 13: Change in WTE numbers in the health service, 2008-2018

Medical Nursing Health/Social Care

Management/Admin

General Support

Patient and Client Care

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

Change 2017-2018 Change 2008-2016Change 2016-2017

Net Change 2008-2018

Source:HSEHRReports

By using the changes in whole-time equivalents and in overall pay expenditure, the average cost to the HSE per

whole-time equivalent can be calculated. As Table 10 shows, there have been large increases in the costs of

Management/Administration and General Support staff, with a more modest increase in Nursing.

Table 10: Average cost per whole-time equivalent, 2011 and 2016

Staff Category 2011 2016 Change Percentage

Medical/Dental €91,958 €89,252 -€2,705 -3%

Nursing €41,232 €42,725 +€1,493 4%

Health/Social Care Professional €38,912 €38,491 -€421 -1%

Management/Administration €33,403 €36,879 +€3,476 10%

General Support Staff €31,004 €35,803 +€4,799 15%

Patient and Client Care €35,631 €35,996 +€364 1%

Source:HSEHRReports,PBOcalculations.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

31

Agency pay expenditure

Agency pay expenditure rose over the period of the economic and fiscal crisis, growing by €133 million between 2009

and 2013.24 In 2014, the agency pay bill reached €341 million. In 2015 the “health pay bill strategy is predicated on an

increase in basic pay of 3% … to be primarily funded by a decrease in agency costs across the health sector by 42%, from

€341 million to €199 million.”25 In 2015, the cost of agency pay was €332 million, and in 2016 agency pay was €345

million, above the previous peak set in 2014. For 2017, the latest management data report, published in December,

shows that the agency pay to date totalled €367 million.26

Figure 14: Agency pay by category (€ millions)

201420132012 2015 2016 2017

Medical Support Nurses Care Assistants, Porters etc.

Central Support Allied Health Professionals

0

20

40

60

80

100

120

140

Source:HSEManagementDataReports

Figure 14 illustrates the trend in Agency Pay by staff category between 2012 and 2016. Most notable is the significant

increase in Medical/Dental between 2013 and 2014. Post 2014, the increase from 2014 to 2016 is entirely as a result

of growth in the cost of “Care Assistants, Porters, etc.” This somewhat mirrors changes in the overall balance of staff

numbers in the health service – insofar as the growth is experienced in the Medical/Dental, and Patient & Client Care

staff categories.

This section does not address an ongoing issue in relation to ‘Section 39 staff’, who work for State-funded voluntary

bodies and agencies providing health and social care. The Department of Health and the HSE are reported to have

“argued that staff working in Section 39 organisations” are not public servants and are not covered by public service

pay agreements.27 Discussions in the Workplace Relations Commission over the issue of pay were held on 25th July.

24 Callaghan,StaffPaper2014:AgencyExpenditure,IGEES,p.2.

25 Mullins,StaffPaper2015:HealthAgencyExpenditureQ12015,IGEES,p.2.

26 December2017ManagementDataReport,p.156.

27 ‘TalksonpayrestorationforSection39stafftotakeplaceinJuly’,IrishTimes,27June2018SIPTUconfirmSection39workersstrikeactionafterpaytalkscollapse’,SIPTU,25July2018.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

32

Those talks broke down, and SIPTU announced plans to strike in September 2018.28

Irish nurses in an international context

During the economic and fiscal crisis, Irish nurses emigrated in significant numbers to work abroad. One interesting

facet of this trend is the highly localised geographic spread of this movement. It is difficult to secure accurate figures

for the emigration of Irish nurses, but verification requests received by the Nursing and Midwifery Board of Ireland

(NMBI) are a useful tool for estimating the countries Irish nurses are emigrating to. Officially called a ‘Certificate of

Current Professional Status’, a verification request is carried out when a ‘competent authority’ (at the request of a

nurse registered in Ireland) seeks to confirm the registration of that nurse with the NMBI. Not all verification requests

will lead directly to employment, but they are a reasonable gauge of where Irish nurses are seeking to work abroad.

Figure 15 illustrates the geographic concentration more clearly – when Australia is included in the figures, it causes

a massive peak in verification requests in 2008, when 4,896 verification requests were received by the Nursing and

Midwifery Board of Ireland from Australia alone – larger than the entire number of requests received from all other

countries between 2004 and 2008.29 This suggests that Irish nurses’ emigration follows a different pattern and has

different reasons at different points of the economic cycle. When Australia is excluded from the figures, there is

significantly less variation in the number of requests, with peaks in 2009 and 2010. Notably (while excluding Australia)

the level of requests made in 2014-2016 is greater than the number of requests made in 2007-2009 (3,264 vs. 2,764).

Regarding Australia, the trend of rapid increases appears to have now reverted to a more typical position – rising from

560 in 2004 to 4,896 in 2008 but decreasing to 501 in 2016.

Figure 15: Verification requests for Irish Nurses

2013201220112010200920082007200620052004 2014 2015 20160

1,000

2,000

3,000

4,000

5,000

6,000

Total excluding Australia Australia

Source:NMBI,AnnualReports.

28 SIPTUconfirmSection39workersstrikeactionafterpaytalkscollapse’,SIPTU,25July2018.

29 AnnualReportsoftheNursingandMidwiferyBoardofIreland,2005-2016.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

33

Figure 16 isolates the peak for Australian requests in 2008, and this makes the trend in other countries more visible.

The UK emerges as the other key destination besides Australia. Notably, if the trend from 2013 to 2016 continued in

2017, there will have been more requests from nurses from the UK to Ireland than in the other direction.30 The number of

nurses from the UK registering in Ireland has increased significantly in the last four years.

Why do these statistics matter? There is currently a significant amount of pressure on the health service regarding

the pay and benefits packages of nurses in Ireland, based upon the argument that nurses in Ireland are receiving better

offers of employment in other markets.31 While a 2017 Higher Education Authority survey32 (69% response rate) found

that of the 2015 graduate cohort, 89% were in employment in Ireland 9 months after graduation, this is an important

issue in the context of the position that nursing pay occupies in the health sector. This section of the paper will examine

the financial facts about opportunities for nurses in Ireland and their key destinations. This does not account for

differences in working conditions, working hours, job size (i.e. the amount or level of work Nurses are expected to do,

that would otherwise be carried out by other staff, usually without any additional remuneration) or educational and

development supports.

Figure 16: Verification requests by country of origin, excluding Australia’s peaks in 2008 and 2009 – 2004-2016

2013201220112010200920082007200620052004 2014 2015 20160

200

400

600

800

1,000

1,200

Australia Canada UK USA Other

Source:NMBI,AnnualReports.

30 HealthExpenditure:Nursing&Midwifery,SpendingReview2018,IGEES,p.14.

31 See,forexample,‘70%ofnewnursesmayemigrate’,IrishExaminer,3May2018.

32 HigherEducationFactsheet:Nursing,HigherEducationAuthority,2017,p.6.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

34

As Figure 16 shows, the two key destinations for Irish nurses seeking to work abroad are Australia and the UK. Table

11 provides the starting point, mid-point and end point of salary scales in Ireland and the top two sources of verification

requests for Irish nurses. An important caveat to these scales is the different length of salary scales in different

jurisdictions. With 11 points, the Irish salary scale is longest of those chosen for review, while the Queensland and

UK scales have 7 and 8 points respectively. This means that staff in the latter two scales will reach the top point of

the scale four years earlier (Irish nurses start at point 2 of the NHS salary scale, as a result of their qualifications).33

Table 11: Comparison of Staff Nurse/Registered Nurse Salaries in Ireland, UK and Australia (PPP US Dollars)

Country Starting Point Mid Point End Point

UK* $32,266 $34,917 $40,890

Ireland** $35,692 $42,842 $52,908

Australia (Victoria)*** $39,511 $45,545 $52,093

Australia (Queensland)*** $44,390 $48,567 $56,937

Source:OECD(PPPfactor),RoyalCollegeofNursing,HSEsalaryscales,QueenslandNursingSchedule,NursesandMidwives(VictorianPublicHealthSector)EnterpriseAgreement2016-2020.

*FiguresarethoseforaBand5StaffNurse.IrishNursesarehiredonpoint2,inrecognitionofnursingdegreequalification.Salaryscalehas8points,somidpointchosenispoint4.

**IrishsalaryquotedisthatforaStaffNurse.Salaryscalehas11points,somidpointchosenispoint5.

***VictoriaandQueenslandarechosenastheyfallateitherendofthedisparatesalarylevelsacrossAustralia.SalaryquotedisthatforaRegisteredNurseGrade2inVictoriaandRegisteredNurseGrade5isQueensland.SalaryscaleinVictoriahas10points,sopoint5ischosenasmid-point.Queenslandhas7points,sopoint3ischosenasmidpoint(point4is$50,654).

From the above details, there does appear to be a significant premium paid to nurses travelling to Australia, with even

the lowest salary examined exceeding the Irish starting salary by $3,819. On the other hand, the UK would seem to offer

a salary that is lower than the Irish offering by a similar degree. However, this UK figure needs further context, as there is

a supplement payable to Nurses, depending on the location of their workplace (called the High Cost Area Supplement).

Table 12: NHS High Cost Area Supplement (Irish salary included for reference)

Area Starting Point Mid Point End Point

Outer London $37,320 $40,155 $47,024

Inner London $38,719 $41,901 $49,069

Fringe $33,879 $36,663 $42,935

Ireland $35,692 $42,842 $52,908

Source:NHSEmployersandHSESalaryScales

33 INMOSubmissiontothePublicServicePayCommissionPhaseII,p.11.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

35

Table 12 shows that nurses working in Outer London and Inner London are earning a similar salary as their Irish

counterparts (the largest differential is between a maximum starting salary of $38,719 in the UK vs. $35,692 in Ireland,

while nurses working outside of London are earning substantially less in the UK than their counterparts in Ireland. This

suggests that the main driver for nurses exiting the Irish market to emigrate to the UK may not be pay rates. However,

more accurate data on the destinations of Irish nurses within the UK would make it clearer whether pay is playing a role

in this outflow. As stated at the opening of this section, this does not account for the differences in working conditions,

job size or educational and development support. It would appear, however, that work to identify and codify these

differences is essential for a thorough understanding of the driving forces behind the emigration of Irish nurses.

Conclusions on the health sector

Health sector expenditure is significant as an overall share of public expenditure, both in pay and in general. The €7.1

billion of health sector pay expenditure makes up 40% of all pay expenditure and 46% of overall health expenditure in

the RevisedEstimatesforPublicServices2018. Since rising to 40% of voted pay expenditure in 2005 (from 33% in 1998),

this has remained relatively static; its lowest point between 2005 and 2018 being 39.7%.

The most notable trend in the make-up of pay expenditure has been the changing make-up of the health sector

workforce. During the period 2008 to 2018, there has been a:

n24% increase in the number of Doctors and Dentists;

n13% increase in Patient and Client Care staff;

n5% decrease in the number of nurses; and

n25% decrease in the number of general support staff.

While the number of Management and Admin Staff has been a common issue of public discourse, over the whole period

the change in the number of these staff has been relatively small.

Alongside the changing structure of the permanent workforce, the growth in agency pay has been a particularly

significant development. The latest provisional figures for 2017 show it at its highest ever level, €367 million, despite

attempts in 2015 to control it and return it to lower levels. In agency pay, the trend has matched the trend in overall staff,

and is even a slightly more pronounced version of the overall trajectory of pay by staff category; in just five years, agency

pay costs for ‘Care Assistants, Porters, etc.’ rose from €55 million to €115 million, a rise of 110%.

Finally, with the recruitment and retention of health service staff a key issue for the health service, any changes designed

to address challenges in these areas should take account of working conditions, career development etc. rather than

focussing solely on salary rates.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

36

Gross pay expenditure in this sector in 2018 is expected to be just over €6 billion. This marks an increase of €379

million year-on-year. Between 2016 and 2017, this expenditure increased by €371 million – making the cumulative

increase over €750 million in two years.34 Figure 17 below illustrates the changing expenditure levels between 2012

and 2018. Most notable is that the vast majority of pay expenditure in the education sector is incurred under Primary

and Post-Primary Teaching. The next closest heading is Higher Education, which is expected to incur €762 million in

2018. This compares to €2.4 billion in Primary Teaching and just under €2 billion in Post-Primary. Therefore, the key

cost drivers for education pay expenditure are these sectors.

Figure 17: Cumulative Pay Expenditure Allocation by Sub-Sector, 2012-2018 (€ millions)

201320122011 2014 2015 2016 2017 20180

500

1,000

1,500

2,000

2,500

Higher Education Special Needs Assistants Non-teaching Sta� Skills Development

Departmental Administration Primary Teachers Post-Primary Teachers

Source:DPERDatabank

34 AllfiguresfromDPERDatabank.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

37

Public Sector Pay and Pensions: Features and Key Determinants

Education sector pay expenditure

Demographics and education sector pay expenditure

IGEES and the Department of Education and Skills have both carried out policy research estimating the impact of

demographics on education sector expenditure in general.35 The PBO will also analyse the possible future impacts

of demographics on education sector expenditure in a forthcoming paper addressing demographics more generally.

In relation to expenditure on pay specifically, demographics are also the key driver, though there are policy decisions the

Government can make to change the size of the demographic impact. The key policy lever the Department of Education

and Skills has to change the impact of demographics upon pay expenditure is the Pupil-to-Teacher ratio.

The staffing schedule

The Staffing Schedule is the key factor that drives pay expenditure at Primary and Post-Primary in Department of

Education, as the number of Teaching Posts each school receives are allocated based on the target ratio set by the

Department in the RevisedEstimates, expressed as a ratio, e.g. 19:1. What this means is that for every 19 students, a

school will be allocated 1 teaching post.

Not all types of teaching posts are dictated by the Staffing Schedule – Guidance Teachers, Special Needs Assistants,

Resource Teaching/Learning Support, and teaching posts in special schools are all set specifically in the Revised

Estimates.

First and Second-level education

First and Second-level education makes up 85% of all pay expenditure under Vote 26 in 2018. The allocations under

this heading can be split into four groups:

1. Administrative Expenditure;

2. Expenditure on Primary Teachers;

3. Expenditure on Secondary Teachers; and

4. Grants and expenditure that covers both Primary and Secondary Schools, but is not broken down.

35 IGEES,PrimaryandSecondLevelEducation:2016-2033ExpenditureImplicationsofDemographicChange(2015),DepartmentofEducationandSkills,ProjectionsofFull-TimeEnrolment:PrimaryandSecondLevel:2017-2035(2017).

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

38

As an example, Table 13 gives a breakdown over these four sectors for 2018:

Table 13: First and Second Level Expenditure breakdown, 2018

Sector Allocation

Administrative and Other Expenditure €67,385,000

Primary Teachers €2,415,590,000

Secondary Teachers €1,975,845,000

Grants and expenditure shared by both levels €700,242,000

Source:DPERDatabank

Administrative Expenditure: In 2018, Departmental Administration was €65.45 million, while other areas made

up €1.94 million under that heading.

Grants and expenditure shared by both levels includes the salaries of SNAs, Non-Teaching Staff and Grants to Primary

and Post-Primary Schools and bodies. Of this, SNAs are by far the largest part of this expenditure, making up 73.4% of

this heading from 2013-2018. Using the latest data available (Financial Year ended 31st December 2016), 81% or €346.7

million of expenditure on SNAs was incurred by Primary Schools.

Primary sector

Primary Sector expenditure has largely been a function of demographic change over the previous decade. Since

2006, pupil numbers at primary level has increased at a rate similar to change in pay expenditure in Primary Schools

(including SNAs and non-teaching staff ). In the CSO’s projections, the pupil numbers are expected to peak in 2021,

before beginning to decline, as a result of demographic factors.36

It should not be taken as a given that the pay expenditure at primary school level will necessarily follow the demographic

trend downwards. As discussed earlier, the Government has a number of levers that can be used to change the ratio of

teachers to students. In addition, the nature of teaching contracts means that for the most part, reductions in the

numbers of teachers could be carried out by not replacing teachers retiring or exiting the profession for different

reasons.

It is particularly noticeable that while projections assume that expenditure and pupil numbers track each other closely

for the period 2006-2018 this is not the case in reality. Figure 18 illustrates that while the general trend of demographics

is followed, the actual amount of expenditure depends upon pay agreements, departmental policy, and how many

teachers continue to accrue increments.

36 CSOLabourForceandPopulationProjections2017-2051.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

39

Figure 18: Primary Teacher Pupils and Pay, 2006-2017, (€ millions)

1,250

1,450

1,650

1,850

2,050

2,250

2,450

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017300,000

350,000

400,000

450,000

500,000

550,000

600,000

Primary Pupils (lhs) Primary Teacher Pay (rhs)

€ millions

Source:DepartmentofEducation,AnnualStatisticReports2006/2007–2016/2017.

A large proportion of the pay bill for primary teaching has also been de-coupled from simple demographic effects

by the increasing importance of Special Education Needs in the primary system’s expenditure. Between 2011 and

2017, expenditure on special education increased from €1.2 billion to €1.68 billion.37

The majority of special education expenditure occurs under Primary School headings, though it is difficult to break down

accurately based on publically available figures. 80% of all expenditure on Special Needs Assistants in 2016/201738 and

72.1% of Resource Teacher hours were allocated to primary schools (based on February 2018 data).39 If the roughly €1

billion total figure for additional teaching hours was equally spread, this would imply that €737 million of expenditure

is incurred in the primary sector for resource teaching hours.

Post-primary

Post-primary pay expenditure is split into two broad categories:

1. Secondary, Comprehensive and Community Schools; and

2. Education and Training Boards (ETBs).

In this main division of expenditure, the majority falls under Secondary, Comprehensive and Community Schools. As

Figure 19 shows, Secondary, Comprehensive and Community Schools accounts for €1.288 billion, while ETB Teachers

account for €686 million in pay expenditure.

37 DisabilityandSpecialEducationRelatedExpenditure–PartofSpendingReview2017,IGEES,p.37

38 StatisticalReport2016-2017,DepartmentofEducation.

39 SpecialEducationTeachingAllocationforPrimarySchoolsandSpecialEducationTeachingAllocationforPost-PrimarySchools,NationalCouncilforSpecialEducation.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

40

Figure 19: Secondary Teaching Pay Expenditure, 2013-2018, € millions

2013 2014 2015 20172016 20180

200

400

600

800

1,000

1,200

1,400

Secondary, Comp, and Comm. Schools ETB Teachers

€ million

Source:DepartmentofEducationandSkills

In 2015, the Technical Working Group on Teacher Supply within Ireland produced a report on issues for workforce

planning in the education sector. While the group examined both the primary and post-primary sectors, its most

noteworthy conclusions concerned the post-primary sector. These findings identified the limitations faced by the

Department when carrying out workforce planning for the post-primary sector, including that it had not been possible to

gather all of the data necessary to produce “a reliable model for the planning of teacher supply in the post-primary

sector.”40

Calculating the supply and demand for teachers at post-primary involves the addition of significant complications

above and beyond those faced by primary teaching.41 There are three key issues:

1. Most post-primary teachers are employed by voluntary secondary, community or comprehensive schools

and data is gathered through the Department’s payroll;

2. The remainder of schools are operated by the Education and Training Boards (ETBs) and do not use a central

payroll or HR system, making it difficult to consolidate data on teaching activity in those institutes;

3. Student demand and teacher supply will also be different across different subjects.

A key issue for teacher supply at post-primary is accurately estimating the current supply of teachers for each subject,

and defining the amount of “out of field” teaching that is occurring in schools. “Out of field” teaching refers to teachers

instructing classes without qualifications in the subject they are teaching. The Technical Working Group came to the

conclusion that the current workforce was imbalanced and “certain subjects seem to be in shortage, while others

are in oversupply”.42

40 StrikingtheBalance,TeacherSupplyinIreland:TechnicalWorkingGroupReport,TeachingCouncil,2015,p.30.

41 Ibid,p.24.

42 Ibid,p.28.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

41

Conclusions on the education sector

Pay expenditure in the education sector is heavily dominated by first and second level. Historically, primary and

post-primary education have accounted for over 70% of pay expenditure in the education sector. In both of these

sectors, the most notable recent trend has been significant growth in expenditure on Special Educational Needs

Provision; increasing by 40% from 2011 to 2017.

The demographic driver for primary education is projected to peak within the next five years; the exact year depending

upon different forecasts, after which pay expenditure on this sector would be expected to decrease unless, for example

a policy decision is taken to lower the staffing schedule ratio. The post-primary sector faces more significant challenges

for workforce planning, including a lack of clarity about teacher supply, a lack of control over training providers, and

relative surpluses and shortages of certain subjects. At the level of individual schools, it may be possible to gather this

data to guide hiring and allocation policies, but the data needed to carry out national level workforce planning does not

appear to be available in a usable format. In addition, the current demographic ‘bulge’ is projected to pass from the

primary into the post-primary sector during the period 2021-2026.

The education sector will face significant challenges in the coming years because of the projected:

nlower cohort numbers in the primary sector;

nincrease in the cohort entering post-primary and, subsequently, the tertiary education sector.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

42

Over the last 20 years, public sector pay expenditure has mirrored the development of the Irish economy – a period of

rapid expansion followed by similarly rapid contraction, i.e. it has been pro-cyclical. The difficulties inherent in

negotiating and implementing changes to pay expenditure meant that it was not possible for pay to adjust immediately

to the new economic and fiscal circumstances. The increase in the cost of the public sector pay bill continued beyond the

beginning of the economic and fiscal crisis, pending the required legislative action. This illustrates the risks that have

arisen in the past from a pro-cyclical pay policy and may arise again, especially in the context of reliance on potentially

volatile sources of revenue. This is particularly important as reductions in the public pay bill played a significant role in

the budgetary adjustment required during the economic and fiscal crisis.

In the context of government expenditure, public sector pay is unusually sector-specific, with just two Votes (Health and

Education & Skills) accounting for 74% of gross pay expenditure in the RevisedEstimatesforPublicServices2018.

Expenditure in both of these sectors is partially driven by demographics, and otherwise by policy decisions, including

public sector pay policy.

The impact of policy changes can, for example, be seen in the education sector in the increase in expenditure on Special

Needs by 260% from 2004; the majority of the expenditure under this heading is pay expenditure (88%).43 Demographic

drivers of expenditure are expected to pass from the primary to the post-primary sectors during the years 2021 to 2026,

and thereafter to the higher education sector.

In the health sector, the trend in recent years has seen the number of positions for nurses decrease, with a concurrent

rise in the area of PatientandClientCare. However, nursing remains the dominant staff category in the health sector and

next to the Medical/Dental staff category is the most expensive per whole-time equivalent.44 In addition, issues with the

recruitment and retention of nurses in Ireland need to be addressed holistically, and pay increases should not be seen as

the sole factor deserving attention.

43 SpecialEducationNeedsprovision,June2017,IGEES,p.2.

44 SeeTable10onp.31.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

43

Public Sector Pay and Pensions: Features and Key Determinants

Overall conclusions

A pre-requisite in controlling pay expenditure is detailed and accurate information on staffing numbers and expenditure

by staff category. The Teacher Supply Technical Working Group provided clear recommendations for improving the

framework of monitoring teacher supply. In particular, planning for future staffing requirements would be improved by

building a “coherent and reliable dataset for future planning” using data gathered from all schools.45 In particular, the

more complex model in post-primary education needs reliable data upon supply of teachers by subject specialisation,

and student demand for each subject, allowing the two to be mapped against each other to project needed recruits on

an annual basis. Similarly, greater analysis of the incentives for nurses to work abroad would be useful.

The challenge facing the public sector as a whole in the coming years is meeting the service demands faced by pay-

intensive sectors in a sustainable way. Managing the response to demographic changes in both the education and

health sectors will therefore be a key challenge for future governments. In the past, pay expenditure was allowed to

increase in such a way that it left the Exchequer exposed when pro-cyclical tax revenues suffered a significant decrease

and for that reason strategic decisions should be considered at this juncture.

45 StrikingtheBalance:TeacherSupplyinIreland,p.32.

Publ

ic S

ecto

r Pa

y an

d Pe

nsio

ns:

Feat

ure

s an

d Ke

y D

eter

min

ants

Public Sector Pay and Pensions: Features and Key Determinants

44

Contact: PBO@Oireachtas.ie Go to our webpage: www.Oireachtas.ie/PBO Publication date: 16 August 2018

Houses of the Oireachtas Leinster House Kildare Street Dublin 2 D02 XR20

www.oireachtas.ie Tel: +353 (0)1 6183000 or 076 1001700 Twitter: @OireachtasNews

Connect with us

Download our App