Public sector pension contributions could rise steeply

Public sector workers could face a steep rise in their pension contributions as the government plans to take steps to reform the benefits.

The government workers could be expected to pay hundreds or even thousands of pounds more each year into their pension pots, as the era of early retirement on generous payments is brought to an end, the Daily Telegraph has reported.

A new government commission, led by John Hutton, the former Labour defence secretary, could recommend public sector staff begin paying more towards their retirement as early as next spring.

The fears come as chancellor George Osborne said on Sunday that the disparity between public and private sector pensions was “unsustainable” when the country was entering an age of austerity.

Osborne said: “The public sector pension bill is unsustainable. We want to balance the entirely legitimate desire of people in the public sector to have a decent retirement, which I want to protect, but also something that’s fair for taxpayers across the economy.

“Tuesday’s [Budget has] got to be a moment when Britain looks itself in the face and says we are going to deal with the problems of the past, we are going to pay for the bills of the past, and we’re going to plan for a brighter future.”

The newspaper believes Hutton’s Public Service Pensions Commission will go further than anticipated and look at forcing state employees to pay more from their own wages, reducing the amount the taxpayer has to contribute.

With Hutton due to report in time for the 2011 Budget, public sector staff could be asked to increase their pension contributions by spring. He has been asked to find savings within this financial year and will deliver an interim report in the autumn.

Osborne also warned the UK is “on the road to ruin” unless action is taken in the Budget this week to cut the deficit.

The chancellor also hinted that a freeze in public sector pay, to be announced in Tuesday’s Emergency Budget, could last for more than the year that had been expected.

The Budget is expected to include the Conservative’s election proposal to ease national insurance (NI) for new businesses. It is thought the employers’ threshold for NI will rise slightly, by £21, and there will be measures to boost firms outside of south-east England.

These measures are expected to comprise a three-year scheme to exempt new firms from paying NI for the first 10 people employed.

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