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Pension contributions from public sector employers ‘must rise’

Current pension contribution levels in the public sector could lead to a shortfall of nearly £1bn, near-final valuations from the Government Actuary’s Departmenthave revealed.

The non-ministerial body highlighted that if current contribution rates continue unchanged, there would a nearly £1bn a year shortfall across the teachers’, civil service and NHS pension schemes.

Final results from the valuation exercise will be published in the coming months and changes to employer contribution rates will come into force in 2015, the Treasury said.

Chief secretary to the Treasury, Danny Alexander, said: “An excellent pension has long been part of the reward for a career serving the public. It is only possible to ensure that public service workers continue to have among the best pensions available if we also control the costs in the long term.

“Our reforms overall will save nearly £500bn. Ongoing analysis of what is a fair contribution is the final stage of the reforms, which will ensure that long term costs of public service pensions remain under control and are fairly distributed between employees, employers and taxpayer.”

Under Treasury reforms, which will come into force next year, employers will need to increase their contributions in line with the results of the new valuations. As well as raising the retirement age, this is expected to save almost £430bn over the next 50 years.

The Association of School and College Leavers (ASCL) added that last week’s decision to increase school budgets by £350m on the whole “will mean schools are no better off”. This is because the Treasury also landed schools and colleges with a 2.3% increase in pension contributions. Combined with a likely 1% increase in teachers’ salaries this will cost schools about £340m.

Malcolm Trobe, ASCL deputy general secretary, said: “This good news is completely overshadowed by the reality that all schools and colleges will have a huge hole in their budgets caused by the pensions contribution rise. This will have a catastrophic effect and lead to larger class sizes and reduced curriculum choice. We want the government to ensure that this increase in contributions is fully funded so that children’s education is not compromised.” 

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