Pensioners protest against the botched plan to abolish medical cards for over 70s two years ago. New 'grey power' protests can be expected

OVER 100,000 retired state workers may be facing a cut in their public-sector pensions in the December budget, the Sunday Tribune has learned.

A proposal to cut pensions of public-sector employees, mirroring last year's cut in the pay of state workers by 5%-8%, is on the table. Retired state workers escaped the impact of that pay cut but government sources say pensions of public-sector workers will have to be considered, although some ministers continue to believe it is unlikely to happen.

The annual public-sector pension bill has soared by 65% since 2005 to €2.3bn, compared to an increase of just 11% in public-sector pay. Roughly 103,400 people receive a public-sector pension, suggesting an average pension of €22,250.

The government has taken a tough line on public-sector pay in the past two budgets, first introducing a pension levy that reduced pay by an average of 7% and then, last December, reducing pay by between 5% and 8% (with bigger cuts for those earning more than €125,000).

However, it insulated retired public servants from those cuts largely because of the political fallout when, in October 2008, the government moved to end the automatic medical card for over-65s.

But the need to achieve €6bn in savings, allied to the soaring pension bill, has forced the government to re-examine this area.

Asked how such a move would be received by retired state workers, one government source said: "You can't have a budget of €6bn cuts with a guaranteed result of no revolt. People are not going to be happy."

An average cut of 5%-6% in public-sector pensions would save the state €115m to €138m a year.

This is in addition to the €700m a year the government believes it can save from the public-service pay bill because of a higher than expected rate of departures and retirements.

As revealed in last week's Sunday Tribune, the government has backed off plans to cut the state pension after a furious reaction from Fianna Fáil backbenchers.

Although the move would have brought savings of close to €300m, it has been dropped because of the belief that it would fail to get the support of some government TDs and would bring down the entire budget.

"It is not politically feasible. A couple of guys would love to be heroes on this one," one senior TD said yesterday.

However, the generous tax treatment of pensioners – including additional tax credits and exemptions from Dirt – are certain to be targeted. While there is an acceptance in government that those pensioners entirely dependent on the state pension need to be protected, the view is that better-off pensioners must carry some of the burden being shouldered by the rest of society.

The €6bn is likely to be made up of cuts of €2bn to the capital budget, with current spending reduced by €2.5bn and additional tax revenue of €1.5bn.

It is now increasingly likely that some form of flat-rate property or service charge will be introduced, although there may be some form of exemption for those who bought houses in recent years.