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.
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."