Phil Hogan (Carlow-Kilkenny, Fine Gael)

I thank Senator Byrne for raising this matter. I apologise that the Minister with responsibility for public expenditure is unable to be present. It is not for any legal reason.

The first progress report of the implementation body under the public service agreement or Croke Park agreement was published on 15 June. The conclusion of the body was that the parties have made solid and measurable progress to date and that with the positive engagement of public servants: staff numbers are falling substantially; services to citizens and business are, by and large, being maintained and, in some cases, improved; productivity has increased; thousands of staff are being redeployed within and across organisations and sectors, and services are being restructured and reconfigured; and industrial peace has been maintained.

Clearly, a key objective of the agreement is to deliver significant and sustainable pay savings. I welcome the finding by the body that sustainable pay bill savings in the order of €289 million have been achieved during the review period. This saving has been driven primarily by not filling vacancies arising from a reduction in staff numbers of 5,349 during the period but also other factors such as reductions in overtime costs, down by 5.2%, and reformed work practices and rationalisation. The report clearly shows that public service bodies are generating significant non-pay cost savings through better use of resources, re-organising work and achieving greater internal efficiencies. Costs are also being avoided as a direct consequence of the flexibility and co-operation provided by the agreement and specific examples are highlighted in the report.

While the progress reported by the implementation body is welcome, the reality is that we must go much further. Given the severe fiscal constraints at present, further significant cuts in expenditure, together with further reductions in the numbers employed in the public service, are unavoidable. At the same time, we must also ensure that services to the public are protected to the greatest extent possible. That will be the challenge for the agreement in the period ahead.

In regard to the specific issue raised by the Senator, the public service agreement is a pay agreement between the Government as employer and its employees, represented by the public service unions. Its focus is on the measures needed to deliver sustainable savings in public service pay costs over a four year period in terms of reducing staff numbers, significant redeployment and extensive reform and reconfiguration of services. The focus of this progress report is on the sustainable long-term pay savings accruing as a direct consequence of the co-operation and flexibility which the agreement is providing. It would, therefore, be wrong to include in such a report the pension costs of those who have retired from the public service and who are no longer part of the Croke Park reform process.

It is true that public service pension costs have increased in recent years. However, this is not a direct function of the Croke Park agreement but represents costs which would arise in any event, not least due to the increased longevity of public servants. The body's report, correctly, foot-noted the pension increase over the period but, equally correctly, did not seek to relate it to the Croke Park reform process. This is because the numbers and payroll reduction are not directly related to pension costs. The reductions in numbers reflect not just retirements but also career breaks, special leave, resignations, people moving to shorter working patterns, unpaid leave and so on and can be offset by recruitment or people increasing their working year.

Furthermore, as regards the early retirement programmes, the body's report makes clear that only a relatively small element of the overall increase in pension costs can be attributed to the schemes which operated during the review period and, in fact, such costs decline over time as the early retirees reach the age at which they would have retired in any event.

The report also footnotes the costs associated with the voluntary early retirement and redundancy schemes which were offered in the health sector last year, with one-off costs of €99 million for lump sums and statutory redundancy paid in 2010. There has to be acceptance that schemes to incentivise people to take early retirement or redundancy are going to carry initial up-front costs. This is necessary to assist us in generating the long-term sustainable savings in the Exchequer pay bill that the Croke Park agreement is facilitating and which the implementation body is monitoring.

Finally, it is important to emphasise that steps have been, and are being, taken to reduce pensions costs. Retired public servants and office holders have had their pensions cut by an average of 4%. Retiring public servants also will, after the expiry of the grace period at the end of February 2012, have their pensions calculated on the basis of their actual reduced pay, amounting to an average cut of 7%, with more significant reductions at higher pay levels owing to the tapered nature of the pay cut. This cut was effected by the Financial Emergency Measures in the Public Interest Act 2010, which is delivering a reduction of €100 million in the cost of public service pensions paid to pensioners in 2011 and a commensurate reduction applying in future years. It would, however, be wrong to include the savings from the public service pension reduction in the report.

I welcome the progress outlined in the implementation body's report. In regard to the matter raised, public service pensioners have left the public service and it would, therefore, be wrong to include their pensions costs in a progress report on the Croke Park pay agreement.