UK Public Sector Pensions – increased contributions

£3,000 a year to keep ‘gold-plated’ public sector pensions
Public sector workers will have to pay up to £3,000 a year more into
their pensions to keep their “gold-plated” retirement schemes,
ministers are to announce.
£3,000 a year to keep ‘gold-plated’ public sector pensions
Danny Alexander, the Chief Secretary to the Treasury, warned of even
bigger cuts to pensions if unions carried out their threat of
widespread industrial action and rejected the reforms

By Andrew Porter, Political Editor

10:00PM BST 27 Jul 2011

Figures leaked to The Daily Telegraph show for the first time the
precise amount per month extra that nurses, doctors, teachers and
civil servants can expect to pay from next April.

Ministers will announce that 750,000 of the lowest paid public sector
workers will face no increased contribution. But the remainder of the
five million staff in pension schemes will be asked to pay more, with
the highest earners hardest hit.

In the first year, the best-paid 40,000 public sector workers, earning
well over £100,000, will pay £284 a month – £3,400 a year – more for
their final salary schemes, the figures show. A doctor on £100,000 a
year will pay almost £2,000 a year more; teachers £1,752 and civil
servants £2,100.

In the £50,000 bracket, those working in the NHS will pay £768 a year
extra; teachers £696; and civil servants £684, ministers will say.
Those on a £35,000 salary face paying an extra £516 a year. Those
earning £21,000 a year will pay £108 a year more.

Further increases will be introduced until 2015 so that the overall
extra contributions will total almost £3 billion a year.
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The increase will eventually come to an average 3.2 per cent of each
worker’s gross salary before tax by 2015.

In the case of senior civil servants, these increases represent a near
doubling in the contributions they will be expected to make to
guarantee the same level of pension. For doctors and teachers, that
will mean increased contributions of around 30 per cent and 50 per
cent respectively.

Minsters are braced for a backlash from trade unions, furious at what
they see as the draconian nature of the increases.

Last month, Danny Alexander, the Chief Secretary to the Treasury,
warned of even bigger cuts to pensions if unions carried out their
threat of widespread industrial action and rejected the reforms.

The latest proposals come after The Daily Telegraph exposed a Cabinet
rift over the changes, with Andrew Lansley, the Health Secretary, and
Michael Gove, the Education Secretary, raising concerns about public
sector unrest the reforms will cause.

Mr Alexander will argue today that the lowest paid will be shielded
from the biggest increases. For example, the figures show that when
tax is taken into account, a nurse on £25,000 will be only £12 a month
worse off. But a hospital consultant on £130,000 a year faces paying
£160 a month extra.

Even with the rise in contributions, public sector pensions will be
far more generous than most of those offered in the private sector.

Treasury figures showed last month that a teacher on £32,000 a year
can retire with a pension equivalent to having built up a private
sector pension pot of £500,000 — 20 times higher than the average. To
amass the same amount in defined contribution schemes, private sector
workers would have to save more than 20 per cent of their salaries for
40 years.

Ministers, who want to close the gap between public and private
schemes, intend to use proposals from Lord Hutton, the former Labour
minister, as a blueprint.

He recommended that public sector workers should be forced to retire
later, contribute more to their pensions and have payouts based on
career earnings, not final salaries.

Mr Alexander will say that today’s proposals are just the start of reforms.

The annual cost to the taxpayer of public sector pensions has been
forecast to more than double over the next five years from £4 billion
to £9 billion — the equivalent of almost £400 per household.

The increased contributions will save £2.8 billion a year in three
years: £1.2  billion in 2012-13; a further £1.2 billion in 2013-14;
and the remaining £400 million in 2014-15.

Ministers will point out that people are living longer and need to
work longer and pay more if the pension system is to be saved from
bankruptcy.

Union bosses reacted furiously to Mr Alexander’s warning last month
accusing him of pre-empting the discussions between the Cabinet Office
and union officials over the plans.

Those talks are expected to resume shortly and ministers want the
matter resolved by the end of October.

This week, rifts within the Cabinet over the issue were exposed by a
leaked letter from Andrew Lansley, the Health Secretary.

He warned that the reforms would not meet the Coalition’s “commitment
to maintain gold standard pensions”.

He also described parts of the reform proposals as “inappropriate” and
“unrealistic” and warned that they would hit women health workers
particularly hard.

Reflecting growing anxiety in parts of the Government, Mr Lansley
added: “We face a real risk, if we push too hard, of industrial action
involving staff groups delivering key public services.”

Unions seized on the comments, which Mr Lansley claimed were backed by
Michael Gove, the Education Secretary, saying that they legitimised
industrial action planned for this autumn.

Unions have warned that four million public sector workers were
planning to strike unless the Government backed down. Last month
around 100,000 teachers and civil servants carried out a day of
industrial action, closing around a quarter of schools.

A number of teaching unions put out a joint statement last week saying
they were considering taking further action in November.

Last month, Mr Alexander warned: “The history of reform is littered
with examples of people simply denying the facts. Eventually reality
bites. And when it does, change is urgent and uncompromising.”