Government on the back-foot, pension contribution hike moderated

The Government has Moderated Pensions Contributions Hike

The Government has Moderated Pensions Contributions Hike

Danny Alexander, chief secretary to the Treasury said the government will not hike pensions contribution for public sector employees earning under £15,000, while the hike will be a modest 1.5 percent for those earnings up to £21,000 by 2014-15.

The government was committed to the full spending review savings £2.3 billion in 2012-14 and securing another £2.8 billion during 2014-15. However, lower earners need to be saved from any contribution hikes as well, said Mr. Alexander.

The government concessions came after bitter debates had ensued over the future of public sector pensions since Hutton Review was released. The report had suggested means to reduce the government’s pension liability, but met with fierce protests.

The spending review for 2012-13 has set a target of £1.2 billion in savings, and the government will start formal consultations by the end of this month on hiking public service pension contributions.

Today’s announcement means 750,000 lower earners will not make extra contributions, while a quarter of a million should not pay more than 1.5 percent of their current contributions. This means a modest 0.6 percent increment on a pro-rata basis.

There’s good news for high earners as well. For those in the highest earning bracket, the total increase will be capped at six-percent before tax exemption by 2014-15. This will amount to the contributions hike capped at 2.4 percentage points on pro-rata basis.

The measures will ensure that public service pension remained both affordable and sustainable in the long-run while setting the limit for the government’s and ultimately the taxpayer’s contributions, Mr. Alexander said.

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

“The Government remains committed to securing the full spending review savings of £2.3 billion in 2013-14 and £2.8 billion in 2014-15”, he added.

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