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Pension 'tax' slammed by unions

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Middle and high earners could see their pension contributions more than double, unions have warned.

Unite, Unison and the GMB have warned public service pension commissioner Lord Hutton that the changes will force Local Government Pensions Scheme members to stop saving for their retirement.

In the unions’ final submission to the commission, they warned that protection for low-paid scheme members would leave others paying as much as 14% of their income towards their pension.

The government announced in the spending review that public sector employees would have to pay an average 3% extra towards their pension in order to reduce government debts.

The inclusion of the LGPS members in the rise has been heavily criticised by unions because the scheme does not contribute to public debt and because it was later revealed that the 3% average increase in LGPS contributions was being used to make up for cuts to grants.

In their submission to Lord Hutton, the unions stated that it was “nothing more than a tax” that would see LGPS members earning more than £20,000 paying an extra £1,000 a year and those earning £40,000 paying an extra £2,280.

That in turn would lead to opt-outs and push up the increases needed even further, the unions argued.

“The specific nature of the LGPS is not being properly considered and solutions purporting to address issues with unfunded schemes are simply being applied to the funded LGPS without any consideration of the particular impact that will result on the scheme’s four million members”, their submission stated.

They warned that the government’s spending review announcement had made future reform more difficult. “Previously, the unions were prepared to enter into discussions on future reforms to the LGPS, this is now significantly more difficult.”

Unions have also expressed concern about Lord Hutton’s criticism of Fair Deal protection for the pension arrangements for outsourced workers and argued that it undermined the former Labour minister’s claim he did not want a “race to the bottom”.

The government is set to consult stakeholders on whether the Fair Deal rules should be retained, but ministers have already indicated that it is keen to reduce costs for contractors and recently abolished the ‘two-tier’ code relating to pay and pensions for outsourced workers.

The unions – along with other stakeholders including the London Pension Fund Authority – backed the development of a career-average pension scheme, instead of a final-salary scheme, but said that it would have to be of the same “overall value” as the current LGPS.

But they ruled out support for a hybrid scheme, which Lord Hutton promised in his interim report to examine, describing it as “the worst of both worlds”.

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