Baroness Eaton urges public sector pensions rethink

Image caption,
The increase in pension contributions was set out by the chancellor last year

The top Tory in local government has urged Chancellor George Osborne to rethink plans to make public sector workers pay more into their pensions.

Local Government Association (LGA) chair Baroness Eaton said the move could lead many staff to opt out, putting the scheme's future at risk.

The warning comes in a letter, obtained by the Observer, written with Labour LGA executive member Sir Steve Bullock.

The Treasury said it was working to protect the lowest paid from the move.

'Strong evidence'

Public sector workers' pension contributions will rise from April next year under plans set out by the chancellor in last year's Spending Review, saving the Treasury an additional £1.8bn by 2014-15.

Lady Eaton and Sir Steve - who is the directly elected mayor of Lewisham in south London - warned that rather than bolstering the local government pension scheme the move could lead to many employees opting out.

In their letter they said if that happened it would call into question the sustainability and viability of the pension scheme.

This in turn would leave the taxpayer picking up the bill as workers would end up relying on means-tested benefits in retirement, they added.

The letter said: "There is strong evidence to suggest that the opt-out rate will be far greater than the 1% envisaged in the Spending Review announcement.

'Need for reform'

"Neither is there any evidence to suggest that full account has been taken of the likely reductions in the local government workforce over the Spending Review period, a large proportion of which will be scheme members."

A recent survey by the GMB union suggested that 39% of its members who currently paid into the scheme would opt out if they were asked to contribute more.

A Treasury spokesman said: "As set out in the Spending Review, the government will from April 2012 phase in an increase in pension contributions by public sector workers of an average of 3%.

"The government is in discussion with stakeholders, including the unions, about implementation of this increase with a view to protecting the lowest paid.

"The interim Hutton review identified the need for reform and the government is awaiting his final report in spring."

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