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PPI says union deal will not mean higher taxes

The Pensions Policy Institute says business leaders are wrong to suggest that the Government’s agreement with unions over public sector pay will have to be funded by higher taxes.

The body, which is an independent charitable think-tank which gives non-party pol- itical comment in the field of pensions, has issued a briefing note contradicting the views of many, including CBI director general Digby Jones, suggesting that the taxpayer will lose out because of the agreement.

It says the agreement in October did not change the fact that expenditure on unfunded public sector benefits is expected to increase from 1.5 per cent to 2.3 per cent over the next 30 years, largely due to improved longevity and increasing number of workers who have had strong salary growth in recent years.

The PPI says the proposed reforms were expected to lead to savings of 13bn over the next 50 years which the agreement announced by DTI secretary Alan Johnson confirmed rather than altered.

Therefore, the PPI says, there is no reason to believe that the tax bill should go up as a result.

It says 85 per cent of the savings were always intended to come from a rise in pen-sion age for new entrants and the remaining money can be found through benefit cuts or increased member contributions.

The PPI says Government communication on the issue has not helped, with confusion surrounding pension age and retirement age clouding the debate.

PPI director Alison O’Connell says: “The perception that this means a growing divide between public and private sector pension arrangements is not helpful for pension policy more generally.”

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