Govt proposes 3-yr phased public pension contribution hike

The government is considering phasing in the 3.2 percentage point increase in public sector workers' pension contributions over three years, a slower pace than previously planned.

Plans to make £2.8bn worth of savings to public sector pensions by hiking contributions by an average of 3.2 percentage points may not take effect until 2015.

It follws a mooted announcement from Chancellor George Osborne to put in place a "progressive" phasing of the increase.

Reforms are now set to be put in place next April with the aim of generating £1.2bn of savings by April 2013.

The next year the savings bar will rise to £2.3bn before hitting the £2.8bn target set out by Chancellor George Osborne by April 2015.

As previously indicated, the intended £1.2bn worth of savings in the first year will not target people earning under £15,000 while a cap of 1.5% contribution increases will be put in place for those earning under £21,000.

This amounts to a 0.6% hike in contributions for everyone on under £21,000, compared to the intended 3.2 percentage point average increase across the board.

Treasury chief secretary Danny Alexander (pictured) said: "The government remains committed to securing the full Spending Review savings of £2.3bn in 2013-14 and £2.8bn in 2014-15, requiring each scheme to find savings equivalent to a 3.2 percentage point increase.

"Scheme specific discussions will make proposals on how these savings are achieved and will be required to make proposals by the end of October this year.

"For local government, the government recognises that the funded nature of the scheme puts it in a different position and will discuss whether there are alternative ways to deliver some or all of the savings."

The scheme-by-scheme consultation will launch at the end of this month and run until October.

Discussions between unions and government will now break off into separate paths for each of the seven main public sector schemes.