The government has said that some of the increases announced previously to public sector pensions may be shelved, but employees must agree to other savings initiatives instead.
The plans to bring in the first rise in pension contributions for most public sector workers will still go ahead in April 2012, despite the recent industrial action taken by teachers, lecturers and other civil service workers. However, the latest suggestion is that future increases may not come into effect.
The new contribution increases affect members in pension schemes for the civil service, NHS, teachers, police force and firefighters.
The new pension proposals will see staff who earn between £15,000 and £21,000 per annum have a contribution increase of 0.6 percentage points from April 2012. Those who earn more than £21,000 a year will have to increase their contributions by 2.4 percentage points. Public sector workers earning less than £15,000 per annum will have their contributions remain the same.
The coalition is following the recommendations set out in a report by the former Labour pension’s minister, Lord John Hutton. His review of public sector pension schemes, published earlier this year, suggested that pensions needed to be changed from final-salary pensions to career-average pensions.
He also recommended that higher contributions needed to be made by workers, along with increasing the pension age so it came in line with the state pension age.
The government had initially proposed that contributions be increased to a total of 1.5 percentage points for workers earning between £15,000 and £21,000 and a total increase of up to 6 percentage points for those at the higher threshold of over £21,000 per annum. These increases would have come into effect by 2014-2015.
Now the government is open to the idea of scrapping any further pension contributions over the next couple of years if savings can be found in other areas.
Chief Secretary to the Treasury, Danny Alexander said: “The government remains committed to securing the full Spending Review savings of £2.3bn in 2013-14 and £2.8bn in 2014-15, requiring each scheme to find savings equivalent to a 3.2 percentage point increase,”
“Scheme specific discussions will make proposals on how these savings are achieved and will be required to make proposals by the end of October this year.”
There will need to be separate discussions for those who pay into local government pension schemes as they are funded by underlying investment funds. However, there is a possibility that they won’t face any contribution rises if the government can find savings through different channels, such as later retirement ages or benefit cuts.
“For local government, the government recognises that the funded nature of the scheme puts it in a different position and will discuss whether there are alternative ways to deliver some or all of the savings,” Mr Alexander said.
Trade unions have previously argued that increases to members’ pension contributions would spur thousands of lower paid staff to leave their pension schemes as they wouldn’t be able to afford the contributions. They pointed out that this would have the opposite effect to funding that the government was trying to achieve.
The government now hopes to start talks with individual unions to address the issues on a scheme-by-scheme basis, with new proposals in place by October this year.
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