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Hike in pension costs to wipe out savings on public sector wage bill

THE Government is on course to slash the public service pay bill by €3.5bn -- but nearly a third of the saving will be wiped out by a rise in pension costs.

Official figures reveal that pay cuts and not replacing staff who retire will deliver a 20pc reduction in the annual wage bill over seven years to 2015.

The annual pay bill is expected to drop to around €13.5bn within three years, from €17bn in 2008. But the pensions bill is forecast to rise by about €1.1bn a year, to just under €3bn, over the same timeframe.

The enforcer of the Croke Park deal -- Implementation Body chair PJ Fitzpatrick -- made the predictions yesterday at a Dail committee that is probing savings under the agreement.

He said the increased cost of pensions was due to an expected rise in retirements, but not recruiting new staff to replace them would lead to long-term savings.

However, the €3.5bn savings target will only bring the net pay bill back in line with what it was at the height of the boom in 2006, when it stood at €14bn.

Most of the saving will be achieved by not replacing more than 37,500 state employees who have already left or are due to leave through retirement or exit schemes.

It will also be achieved by a previous pay cut and pension levy, while a smaller portion of the saving is promised under the Croke Park deal.

This includes a target €400m payroll saving this year.

Mr Fitzpatrick came under pressure at the Public Accounts Committee to provide more details of the increase in pension costs when the Implementation Body brings out its next report this summer.

Fianna Fail deputy Sean Fleming said it was not acceptable that pension costs were only given as a footnote in the body's first progress report on the deal last year.

The body, chaired by Mr Fitzpatrick, is made up of union and management representatives from the Department of Public Expenditure and Reform, who are charged with overseeing the deal that was struck two years ago.

Reform

Mr Fleming said the Implementation Body should deal with the pension issue "upfront" because it represented more than €2bn in costs.

Mr Fitzpatrick also admitted that many of the non-pay savings made under Croke Park -- totalling €308m last year -- were not independently verified. Independent consultants MKO Partners Ltd verified three sample measures. They were the redeployment of secondary teachers, the modernisation of medical laboratories, and restructuring of services in Fingal County Council.

However, he admitted the Implementation Body had to rely on the integrity of reports by the secretaries general of government departments on the rest of the reforms.

Mr Fitzpatrick said four future reforms would be examined in detail in the next progress report.

However, Fine Gael deputy Paschal Donoghue said the lack of independent verification of the majority of reforms was a "weakness" that Brendan Howlin's department of Public Expenditure and Reform should address.

"Many people's taxes pay for arrangements like this," he said. "We should have a more robust system."

Mr Fitzpatrick also revealed that the work of the Implementation Body cost around €150,000 a year.

He said 60pc of the Government's higher target to reduce the public service workforce by 37,000 by 2015 had been achieved, and 70pc of the target should be reached by the end of the year.

Irish Independent