Ahead of an expected announcement in the Budget of a £5.5 billion "windfall" from pension reform, Michael Johnson, pensions and savings analyst at the Centre for Policy Studies comments:
"The end of public sector employer NICs rebates (roughly £3.4 billion p.a.) as a result of the Single Tier pension reform represents no net cost (or saving) to the taxpayer: it credits the Exchequer, and debits Departments. The 1.4% increase in public sector employees' NICs (roughly £1.4 billion per year) will provide a net gain to the Exchequer (along with a smaller gain from contracted-out private sector employers and employees, totalling some £0.8 billion per annum).The question then is whether HMT chooses to:
return the public sector employers' lost NICs rebates to the Departments; or
"bank" the saving, either to cut public spending or to spend on new initiatives, such as the Dilnot proposals.
The latter seems likely, as reported this evening.
The unions have left the Chancellor with little choice, because part of the price of the public service pensions deal was a 25 year pledge, from the Chief Secretary to the Treasury, of "no further change" to public service pensions. Consequently, public sector workers will retain the in-built enhancement to their occupational pensions, that compensates them for having been contracted out of the second state pension, as well as being eligible for additional accruals to the single-tier state pension. This "double benefit" will cost the Chancellor billions of pounds per year. Conversely, such a "win-win" is denied to contracted-out private sector workers; they are likely to see their occupational pension benefits reduced by their employers, to recoup the latter's loss of their NIC rebates."
Tim Knox, Director of the Centre for Policy Studies comments:
"The cumulative effect of the Coalition pension reforms will be to break the ring-fence of major spending departments such as the NHS. Given our economic predicament, this break in the ring-fence is a necessity. But the root cause is the failure to reform public sector pensions which UK households will soon be paying an average of £1,600 a year to support. Yes, the Chancellor will tomorrow be able to claim that the end of public sector pension rebates will mean that he has £5.5 billion for new initiatives such as his proposals for long-term care; and to manage the deficit figures. But it is to be greatly hoped that he is clear about what is really happening."
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