Consultation On Pension Contribution Changes Published

The Cabinet Office, Department for Education and the NHS will today publish consultations on pension contribution increases for civil servants, teachers and NHS staff for the financial year.

The increases are broadly equivalent to those expected under the ‘cap and share’ arrangements agreed with Unions in the Pre Budget Report 2009.

The proposal to increase pension contributions comes as discussions continue on a package of reform, based on work by former Work and Pensions Secretary, Lord Hutton. They are designed to ensure that public service pensions remain among the very best available, while dealing with increased costs of people living longer.

The proposed increases set out today will deliver over £1 billion of the £1.2 billion savings in 2012/13, as set out in the Spending Review 2010. The proposals represent 40% of the average 3.2 percentage point increase in public service pension contributions which the Government announced it would phase in from next year.

Protections for the lowest paid mean that those earning less than £15,000 will see no increase and those earning between £15,000 and £21,000 will have their increase capped to 0.6 percentage points (before tax) in 2012/13. The maximum increase in 2012/13 will be 2.4 percentage points (before tax) in 2012/13.

The consultations published today apply to the Civil Service in England, Scotland and Wales; the NHS in England and Wales and teachers in England and Wales. It will affect approximately two and a half million public service workers.

Scheme specific talks will make proposals by the end of October 2011 on how savings of £2.3 billion in 2013/14 and £2.8 billion in 2014/15 are achieved.

The proposals follow a report by Lord Hutton which recommended ‘comprehensive reform’, including a move to career average, rather than final salary pensions and linking retirement age to State Pension Age.

Lord Hutton also said “there is clear rationale for increasing member contributions to ensure a fairer distribution of costs between taxpayers and members”.

Chief Secretary to the Treasury, Danny Alexander said: “Today, the Government will take the latest step towards setting public service pensions on a sustainable path. Departments will start consultations on the extra contributions nurses, teachers and civil servants will make to their pensions next year.

“Under the agreement that Unions reached with the Government in 2009, contributions increases next year were expected. But because these are difficult times for everyone – public sector workers included, we are ensuring that those with the broadest shoulders will bear the greatest burden. The lowest paid will be protected, and the highest paid will face the biggest increases.

“This is the start of a process, phased over the next three years, that will help set a fairer balance between what employees and the taxpayer contribute towards public sector pensions. We will continue to discuss with Unions how to achieve the required savings in the following two years as well as the longer term reforms proposed by Lord Hutton.”

(BMcN)