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Government to impose “cost ceilings” on public sector pension schemes

The Government will impose scheme-specific “cost ceilings” for public sector pensions in an effort to limit taxpayers’ exposure to unfunded liabilities.

In his report on public service pensions reform, published in March, Lord John Hutton recommended setting a “clear cost ceiling” for public sector pension provision.

In a statement, the Treasury says it plans to “go further” than Hutton’s original proposals in an effort to ensure the pensions low and middle income workers receive are “broadly as generous” as they are now.

It says: “Lord Hutton’s recommendations will inform scheme level discussions and the Government will provide scheme-specific cost ceilings.

“These will ensure that public service pensions remain affordable and sustainable by setting a limit on the contribution made by the Government and ultimately the taxpayer.”

Treasury chief secretary Danny Alexander also confirms plans to implement contribution hikes on a scheme-by-scheme basis.

In order to achieve the savings of £1.2bn in 2012-13, £2.3bn in 2013-14 and £2.8bn in 2014 outlined in the Spending Review, Alexander says the equivalent of a 3.2 per cent contribution increase will need to be found by public sector schemes.

The Government proposal, outlined by Alexander in June, would see no increase in contributions for members earning under £15,000 and no more than a 1.5 per cent increase in contributions by 2014-15 for those earning up to £21,000.

Alexander says: “I can confirm today that to deliver the first year’s savings of £1.2bn through employee contribution increases, scheme-by-scheme consultations for the unfunded public service pension schemes will commence by the end of this month.

“The Government remains committed to securing the full Spending Review savings of £2.3bn in 2013-14 and £2.8bn in 2014-15.”

The consultation on the 2012-13 contribution rise will end in October, with schemes expected to implement the changes in April, 2012.

In a statement, the TUC says: “A meeting of the TUC’s public service unions yesterday agreed to extend the TUC’s negotiations with the Government on public service pensions.

“Further talks will take place centrally, and individual unions will be actively considering also participating in scheme level talks in order to fully explore all the issues and to enable unions and their members to reach a judgement on whether agreement is possible or whether more unions will enter into dispute and plan industrial action.

“The TUC has made clear to the Government, in agreeing to continue negotiations, that unions have not agreed to or accepted any of the Government’s objectives or the change in indexation from RPI to CPI.”

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