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£6 Billion Pensions Tax

Monday, January 14, 2013

GMB fears that pension proposals will scupper public sector pensions deals.

The abolition of the contracting out NI rebate will impose a £6bn new tax burden on workers and companies which is not fair to those who will have to pay more tax.

GMB responded to new pensions proposals from DWP. See press release in Notes to Editors below. Brian Strutton, GMB National Secretary for public services, said "The new flat rate state pension should be fairer than the complicated basic plus additional pension set up it is intended to replace but the detail will need to be scrutinised carefully.

However, there is a very serious consequence arising from the ending of contracting out and that is the increase in National Insurance contributions that employers and employees in defined benefit pension schemes will have to pay. For employers that is 3.4% of the NI ranking earnings and for the 6 million employees affected it will be an extra 1.4%.

The abolition of the contracting out NI rebate will impose a £6bn new tax burden on workers and companies which may be a nice windfall for the chancellor but is not fair to those who will have to pay more tax.

Most defined benefit scheme employers and members will find this unaffordable so will need to renegotiate their schemes. A good example is the Local Government Pension Scheme which has just been reformed by unions and government and would face an unaffordable extra NI bill of several hundred million pounds.

Just as the Treasury legislation to reform public sector pensions is going through parliament DWP is proposing to blow it all out of the water by completely rewriting the state and occupational pension landscape. I will be urging Treasury and DWP to get their act together to avoid reopening the public service pension deals."

Responding to the White Paper Brian Strutton, GMB National Secretary for Public Services, said "The government's published information shows that the move to a flat rate pension is not good news for most people. We can now see that in the longer term a majority of people retiring would be worse off under the new system.

The Treasury stands to save £75bn over the period covered in the White Paper. This is in addition to the £6-9bn per annum windfall to Treasury from the new NI tax hike by removing contracting out.

With some exceptions, it's clear that in terms of winners and losers, Treasury gains and the people lose."

See copy of White paper on single tier pensions as pdf below.


Contact: Brian Strutton 07860 606137 or GMB Press Office on 07921 289880 or 07974 251823 or 020 7391 6755/56.

White paper on single tier pensions

Notes to editors

Copy of press release from DWP, Embargoed Press Notice: 00.01 on Monday 14 January, 2013


Details of the Coalition Government’s plans to simplify the state pension system with the creation of the “Single Tier” pension, will be published in a White Paper on Monday as part of the Mid-Term Review.

The reform will create a simple flat rate pension set above the means test (currently £142.70) and based on 35 years of National Insurance contributions and will hugely benefit women, low earners and the self employed, who under existing rules find it almost impossible to earn a full state pension.

By replacing today’s complex system of add-ons and means-testing the Single Tier will provide certainty to people about what they will get from the state and provide a better platform for them to save for their retirement.

Secretary of State for Work and Pensions, Iain Duncan Smith said:

“This reform is good news for women who for too long have been effectively punished by the current system. The Single Tier will mean that more women can get a full state pension in their own right, and stop this shameful situation where they are let down by the system when it comes to retirement because they have taken time out to care for their family.”

Minister for Pensions Steve Webb said:

“The current state pension system is too complicated and leaves millions of people needing means-tested top-ups. We can do better. Our simple, single tier pension will provide a decent, solid foundation for new pensioners in an otherwise less certain world, ensuring it pays to save.”

Key facts

· There are currently 11.5 million people claiming the state pension

· 2.8 million women receive a state pension of under £80 a week compared to only 474,000 men.

· Some 3.2 million individuals (2.6 million households) - receive Pension Credit to supplement their retirement income.

Key benefits of the reforms:

· 750,000 women who reach pension age in the decade after Single Tier is introduced will on average get an extra £9 a week

· Under the present system, 4.2 million self-employed people are prevented from getting a full state pension. The Single Tier will now properly recognise their NI contributions.

· By the 2040s, over 80 per cent of people reaching State Pension age will receive the full weekly amount of single-tier pension.

· A significant reduction in means testing. The proportion of people reaching State Pension age after the introduction of single tier who qualify for Pension Credit will be halved compared to the current system, and remain under 10 per cent up to 2060.

Key features of the Single Tier pension:

· A single, flat rate state pension payment set above the basic level of the means test, which is currently £142.70 – compared with a current basic state pension of £107 per week and highly variable and unpredictable levels of additional state pension. The White Paper assumes £144 a week start rate, which is up-rated annually by the ‘triple lock’

· An end to different Basic and Additional State Pensions, and contracting out of defined benefit pension schemes. Savings credit abolished.

· 35 qualifying years to receive the full amount with over 80% of new pensioners achieving this by the 2040s

· A minimum number of qualifying years (up to 10 years) to get any single tier

· Self employed people brought fully into the state pension for the first time

· All state pension rights accrued under the old system will be recognised, so nobody will lose out on any pension they have earned.

· These changes will provide people with a platform to save for their retirement and follow last October’s introduction of automatic enrolment*


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