Employee contributions to public sector pensions will rise from April 2012, George Osborne confirmed today in the government’s comprehensive spending review.
The chancellor said the increases would be staggered in order to deliver savings of £1.8bn from the pensions pot each year by 2014-15. The government has accepted the recommendations in the interim report of Lord Hutton’s Independent Public Services Pensions Commission, published on 7 October.
The commission said there was a case for short-term changes to employee contributions in order to save taxpayers’ money.
A 1% increase in employee contributions could save the Treasury about £1bn a year, the report found. Such an increase would leave social workers on £30,000 having to pay £300 more into their pensions each year.
Osborne agreed with the commission that any changes to employee contributions should be “staggered and progressive” and should protect lower-paid workers and those in the armed forces.
“We want public service pensions to be a gold standard,” he said. “At the same time, we should accept that they must be affordable.
“When these public service pension schemes were established in the 1950s, taxpayers made half the contributions.
“Today they make up two-thirds of contributions, and the unfunded bill is set to rise to £33bn by 2015-16.”
The government will not reveal until the commission’s final report is published next spring how much more it expects public sector social workers to contribute to their pension funds.
However, the Treasury said the £1.8bn cut would equate to a blanket increase of three percentage points on average in employee contributions. However, in reality, different schemes already charge variable rates of employee contributions, and the government plans to consult with individual pension schemes on a fair rate for each one.
Most social workers are on the local government pension scheme. They contribute between 5.5% and 7.5% of their salary into pensions, with employers covering about 14% of the overall pay bill.
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