Government using state pension reform to cut costs warns TUC

The TUC has expressed concern that the state pension reforms to be released this afternoon will be used as a cost-cutting exercise for the Treasury.

While praising positive elements in the reforms, which are understood to include a pension for a single person of £144 a week in today’s money starting April 2017 based on 35 years’ service, the TUC has warned pensioners overall may get less as a result of the changes.

Hargreaves Lansdown says the changes to state pensions are cost neutral in the short term but save money in the longer term as state pension age pushes back to rise with longevity.

The TUC also voiced its concern at the 1.4 per cent on band earnings increase in employee National Insurance faced by public sector workers as a result of the abolition of contracting-out which will cease in 2017. But the TUC stopped short of warning of strike action to confront the changes.

TUC general secretary Frances O’Grady says: “We were told the reform would be cost-neutral, but there are signs that the Chancellor is using this reform to take money out of the pensions system. Big questions remain about how the Treasury intends to fund the reform, both in the short and the long-term.

“The parts of today’s White Paper that set out those principles are to be welcomed. We need to simplify a system that few understand, help low-paid women workers – who have never been served by our current system – and the self-employed. But there are real problems about how those ends can be achieved and on what timescale.

“Today’s pensioners will be angry that they miss out on this reform and face continued threats to remove the winter fuel allowance and help with travel. The increases in the state pension age redistribute from poorer people with shorter life expectancies to the better-off who live longer.

“Millions of members of existing pension schemes will face higher national insurance payments from 2017 at a time when wages will have been stagnant for nearly a decade and living standards are down.

“And we are extremely concerned at the impact on both public and private sector employers who will face a big 3.4 per cent increase in national insurance contributions. Unless public sector employers are compensated for this, it will lead to big cuts across public services and, in particular, could derail the local government scheme proposals where councils are already under extreme financial pressure. In the private sector the government needs to ensure that this does not lead to further scheme closures.”