Jan 13 2013
Plans for a radical shake-up of state pensions could lead to a hard-fought deal on public sector pensions being "blown out of the water", a leading union has warned.
The Government will on Monday confirm that a single flat rate state pension, equivalent to around £144 in today's money, is set to be introduced for new pensioners from 2017 in a bid to simplify the system.
Around six million workers will face higher national insurance payments in future as the practice of "contracting out" the state second pension to employers is ended.
Those affected are expected to include more than a million private sector staff enrolled in final salary schemes, and an estimated five million public sector workers.
Brian Strutton, national officer of the GMB union, said a new flat rate pension should be fairer than the present arrangements, but warned of a "very serious consequence" from the Coalition's plans.
He said: "That is the increase in National Insurance contributions that employers and employees in defined benefit pension schemes will have to pay.
"For employers that is 3.4% of the NI ranking earnings and for the six million employees affected it will be an extra 1.4%. Most DB scheme employers and members will find this unaffordable so will need to renegotiate their schemes.
"A good example is the Local Government Pension Scheme which has just been reformed by unions and government and would face an unaffordable extra NI bill of several hundred million pounds. Just as the Treasury legislation to reform public sector pensions is going through parliament, the Department for Work and Pensions (DWP) is proposing to blow it all out of the water by completely rewriting the state and occupational pension landscape."
Mr Strutton said the Treasury and DWP needed to "get their act together" to avoid reopening the public service pension deals, adding: "Abolition of the contracting out NI rebate will impose a £6 billion new tax burden on workers and companies which may be a nice windfall for the Chancellor but is not fair to those who will have to pay more tax."
Unions have been embroiled in a bitter dispute with the Government over its controversial public sector pension reforms, which led to a series of strikes.