Labour claims state pension reform has been “sunk”

The Government says it remains committed to its state pension reforms despite industry concern that public sector pension settlements threaten the proposals and Labour claims the Treasury has “sunk” the plans.

In April last year, pensions minister Steve Webb unveiled a green paper outlining proposals to bring an end to state pension means-testing and offering a higher state pension of around £140 at today’s prices by either introducing a single-tier state pension or accelerating plans to flat-rate the state second pension.

Labour Shadow pensions minister Gregg McClymont (pictured) says Webb’s plans to reform the basic state pension may have been vetoed by the Chancellor due to the costs. He says: “State pension reform was the Government’s flagship pension policy. It appears it may have been sunk by the Treasury.”

Writing in Money Marketing this week, Hargreaves Lansdown head of pensions research Tom McPhail says public sector pension disputes will be making the Government nervous about state pension reform.

He says: “It is possible the Treasury is getting cold feet about the knock-on effect reform of the state pension would have on negotiations with the public sector unions over their final-salary schemes.

“The end of contracting out would mean an increase in NI rates for the five million public sector workers who are currently contracted out through their final-salary schemes.

“It is a safe assumption they would react very badly to being asked to pay 1.4 per cent in NI on top of the 3 per cent increase in member contributions which the current Treasury-led reforms of public sector pensions have demanded.”

Saga director general Ros Altmann says: “Any delay is likely to be linked to the public sector pensions issue but Webb and Work and Pensions Secretary Iain Duncan Smith are still committed to getting this reform through.”

Institute of Directors senior pensions policy adviser Malcolm Small says: “The issue of contracting out is a difficult one for both the Treasury and the DWP, particularly in relation to public sector workers, but there will be many more winners out of this than there will be losers.”

A Department for Work and Pensions spokeswoman says: “We will be bringing forward further proposals on a simpler and fairer state pension in due course.”