Lowest paid in public sector to lose out on pension contributions

While the retirement age for public sector workers will be linked to the state pension age in future, the lowest paid will be exempt from extra pension contributions, a government minister will say today.

In a speech to the Institute for Public Policy Research in London, Chief Secretary to the Treasury Danny Alexander will confirm for the first time that the coalition government intends to link the public sector retirement age to the state pension age, which is due to rise from 65 to 66 by 2020. The army, police and fire service will all be exempted from the move, however.

Plans to base pensions on average salaries in line with former Labour Cabinet minister Lord Hutton’s recommendations will also see contributions from public sector workers increase by an average of 3.2%.

Alexander will attempt to justify the move by saying that there is an “indisputable case” for reforming public sector pensions in order to ensure that they were affordable and sustainable, while being among the best available.

“That case is simple. People are living much longer – the average 60-year old is living 10 years longer than they did in the 70s. This advance comes at a price. It is unjustifiable to ask the taxpayer to work longer and pay more so that public sector workers can retire earlier and receive more themselves,” he will claim.

But a bid to try and head off strikes by up to 750,000 public sector workers on 30 June, Alexander will say that low-paid staff earning less than £15,000 per annum – about 750,000 people - will not face any rise in pension contributions at all.

A further 500,000 workers earning between £15,000 and £18,000 will see their contributions grow by no more than 1.5%. In a further attempt to appease the unions, the government will also phase in the contribution increase, with only 40% of it taking effect in April next year, 80% in April 2013 and the rest in 2014.

But Alexander will also warn public sector workers that it would a “colossal mistake” to spurn the any government deal on pensions and sacrifice the best offer they are likely to receive “for years to come”. At the same time, he will likewise accuse unions of adopting a “head-in-the-sand approach” and of seeming “hell bent on premature strike action before discussion are even complete.