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Tuesday, 23rd April 2024
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EU accounting headache for McCreevy Back  
The Minister for Finance is concerned that the EU‚€ôs accounting rules under the Maastricht Treaty would penalise prudential actions, such as setting aside a fund to meet future public pensions liabilities.

The European System of Accounts mean that the cost of the amounts paid into segregated state pension fund would be recognised when paid. Logic would suggest that, having taken this hit, the cost of paying pensions down the road from that pension fund should not be accounted for as Exchequer expenditure. But not so. Under present EU rules, the payment of pensions to pensioners later would then be counted as State expenditure. It would mean that the State would then have to generate budget revenues higher than otherwise would be necessary to balance the books, by the amount paid by the pension fund.

There is no problem for the public accounts in acccounting for pension contributions as a cost when payments are made. Sources in the Department of Finance point out that this is more prudent than the present rules which do not require accrued pensions liabilities to be recognised in the national accounts. A 1997 actuarial review of social welfare pensions said that the element of PRSI contributions related to pensions would have to double to fund expected social security pensions.

If, for example, Ireland were to fully fund social welfare obligations, it would require £1 billion per annum, using up a good deal of the expected budget surplus for this year. The present budget surplus exists among other reasons because we are not fully funding social welfare pensions, sources point out.

McCreevy says his thinking and decisions on the plan to set up separate funds for social welfare pensions and public sector employee pensions will be influenced by these EU accounting rules. One option would be to seek a change in the rules, he said. It is not clear whether a simple change in the treatment of pension payments out of a pre-funded pool would be possible, without effects on wider areas of public accounting.

The issue arises for the social welfare pension fund more than one for public sector employees, because the payments due under social welfare are not related directly to some external benchmark such as salary. Because the level of social welfare payments are directly the result of political decisions, it is expected to be more difficult to remove them from the ambit of government expenditure under present EU accounting rules.

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