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Unions insist on cost neutrality as starting point for pension reform

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Reforms to public sector pensions must be cost neutral, union leaders have told ministers.

Negotiations between ministers and unions have reached a critical point with only one month until the government announces how Lord Hutton’s recommendations for pension reform will be implemented.

High-level talks between the government and union leaders have been taking place since the peer published his report in March, but little progress has been made, according to a source close to the negotiations.

However, with time running out, the unions have told ministers the starting point should be that the reforms are cost neutral.

The move comes after discussion papers produced by ministers and handed to union negotiators last month appeared to suggest much lower accrual rates - the proportion of salary used to calculate pension benefits - than used currently.

A source close to the negotiations said “the unions told the government that their opening gambit was a million miles away from where things should be and said the starting point should be cost neutrality”.

However, it remains to be seen whether ministers, who commissioned Lord Hutton to find ways to make public sector pensions more affordable for the exchequer, and unions can come to an agreement, particularly as some unions have taken a more hard-line stance than others.

The National Union of Teachers is already balloting members about strike action over pension reform.

The Public and Commercial Services Union is also consulting members. The union previously broke ranks with other civil service unions and walked away from a deal brokered with ministers over changes to redundancy compensation.

The negotiations between ministers and unions have also so far failed to agree how the government’s controversial plan to raise employee contribution rates from April 2012 will be managed.

Although the chancellor promised to protect the lowest-paid staff from the increase, set at 3% average per member staggered over three years, the proposal has provoked strong opposition from unions and some employers.

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