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Employers face £60m contracting-out pensions bill

Employers are facing a bill of up to £60m a year after the Government rejected proposals to allow firms to cut the pensions of 60,000 workers with protected rights.

The Government’s decision to introduce a flat-rate, single tier state pension worth around £144 a week in April 2016 will see contracting-out scrapped. As a result, employers with contracted-out workers will lose their 3.4 per cent National Insurance rebate.

In his 2013 Budget, Chancellor George Osborne confirmed the Government would introduce a statutory override to allow private sector employers to pass on the cost of losing the contracting-out rebate to employees.

The Department for Work and Pensions also consulted on introducing legislation to allow employers to cut the pensions of workers in formerly nationalised industries who have protected rights.

The DWP has today confirmed it will not introduce a statutory override for this group of workers.

It says: “On balance, taking into account the small number of workers we think this issue can and should be resolved through negotiation between employers and their employees. The Government thinks it is import to stand by the promises made to former state workers at the time of privatisation.

“Therefore the Government proposes that employers should not be allowed to use the statutory override to alter the pension schemes in relation to members with protected person status.”

Pensions minister Steve Webb says: “This group of workers were made a specific promise at the time of privatisation and by successive governments. Honouring this promise is the fair and right thing to do.”

Confederation of British Industry head of public services and pensions Jim Bligh says: “This decision will cost large employers who have protected persons in their workforce between £4m and £60m a year, and increase employees’ NI contributions by 1.4 per cent.

“Hitting employers’ balance sheets will further impede business investment and risk their contribution to economic growth, and will hit employees’ pay packets.

“The CBI proposed a simple statutory override that would have enabled schemes to alter their accrual rates purely and solely to offset the loss of the NI rebate. This simple solution would have ensured the reform is cost-neutral for businesses – and without it, it will incur major costs for some of the UK’s biggest businesses.”

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