The government will start formal consultations on increasing public service pension contributions in 2012-13 by the end of this month.
Chief secretary to the Treasury Danny Alexander plans for talks on reform to continue into the autumn. The government and the Trades Union Congress have agreed that to further inform the discussions on Lord Hutton’s recommendations, initial discussions on reform should be opened at a scheme-by-scheme level.
In order to meet the target of £1.2 billion savings set out in the Comprehensive Spending Review (CSR) for 2012-13, schemes will shortly begin consultation on their proposals for member contribution increases from April 2012.
These consultations will only relate to delivering these savings in the first year (40% of the average 3.2 percentage point increase). They will begin by the end of July and be completed by the end of October, in order to ensure implementation from April 2012.
In order to meet CSR savings of £2.3 billion in 2013-14 and £2.8 billion in 2014-15, each pension scheme needs to find savings equivalent to a 3.2 percentage point increase in member contributions.
The government has proposed that there should be no increase in member contributions for those earning under £15,000 and no more than a 1.5 percentage point increase in total (before tax relief) by 2014-15 for those earning up to £21,000.†
This means 750,000 people should pay no extra contributions and another one million should pay no more than 1.5% extra. This amounts to a 0.6 percentage point increase in 2012-13 on a pro-rata basis.
The total increase will be capped at 6 percentage points (before tax relief) by 2014-15 for the highest earners. This amounts to a 2.4 percentage point cap (before tax relief) in 2012-13 on a pro-rata basis.
Chief secretary to the Treasury, Danny Alexander, said: “The government and the TUC have held a series of constructive meetings to discuss public service pension reform and have now agreed that to further inform the discussions on Lord Hutton’s recommendations, there should be scheme level discussions alongside the central process already established.”
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