Budget 2011: McPhail warns on civil servant pension reform

The combined effect of banning contracting out and accepting Hutton’s public sector pension reforms will “stoke the ire” of trade unions, warns Hargreaves Lansdown's Tom McPhail.

George Osborne announced today the government will aim to end contracting state benefits out to final salary schemes as it creates the single tier state pension.

The Chancellor added the government accepts Lord Hutton's reforms as a basis for consultation with public service unions, including moving schemes from a final salary to a career average model.

However, head of pensions research McPhail warns today's pension announcements, when coupled with reforms already in place for public sector workers, will spark more union action.

"The public sector already must pay a 3% increase in contributions, which is not a huge amount of money, but it is then combined with the effect of banning contracting out," he says.

"That means public sector workers will pay more national insurance (NI), whilst moving from final salary to career average, and the retirement age will be linked to the SPA, which we learned today will be linked to longevity.

"There is more than enough there to stoke the ire of the militant unions."