Fears that pension proposal will impose a £6 billion tax burden, scupper public sector pensions deals and price members out of company schemes.
Details of the Coalition Government's plans to simplify the state pension system with the creation of a "Single Tier" pension have been announced today as part of the Mid-Term Review.
The reform will create a simple flat rate pension set above the means test (currently £142.70) and based on 35 years of National Insurance contributions.
GMB Trade-Union Public Services Senior Organiser for the North West and Irish region, Graham McDermott said: "Whilst we clearly welcome efforts to benefit women, low earners and the self-employed, who under existing rules find it almost impossible to earn a full state pension, the abolition of the contracting out NI rebate will impose a £6bn new tax burden on workers and companies which is not fair to our members who will have to pay more tax and who could find themselves dropping out of company schemes they can no longer afford to pay into.
"A new flat rate state pension should be fairer than the current complicated scheme that, as well as everything else, penalises women (almost half a million women pensioners currently get less than £80 per week) and low earners, but the devil really is in the detail. The ending of contracting out, and with it the increase in National Insurance contributions, threatens to undermine the recently agreed Public Service pensions deal and the legislation that is currently working its way through Parliament. Also In the private sector, employers and employees with defined benefit pension schemes will have to pay more. For employers that is 3.4% of the NI ranking earnings and for the 6 million employees affected it will be an extra 1.4%”
Under the proposals individuals will also need 35 years NI contributions instead of the current 30 years.
Many defined benefit scheme employers and members will find this unaffordable so will need to renegotiate their schemes. A good example is the Local Government Pension Scheme which has just been reformed by unions and government and would face an unaffordable extra NI bill of several hundred million pounds.
Just as the Treasury legislation to reform public sector pensions is going through parliament DWP is proposing to blow it all out of the water by completely redefining the state and occupational pension landscape. GMB Trade-Union will be urging Treasury and DWP to get their act together to avoid reopening the public service pension deals.
Graham McDermott added: “The con trick being peddled by the government not only undermines the public service pension agreement and increases the costs for employers and our members in private companies, but will also mean that people will have to pay in for 35 years and wait at least until they are 68 before they can collect it”.