Chancellor George Osborne has confirmed that public sector employees will get up to £4 state pension back for every £1 extra National Insurance they pay.
In his Budget speech he said someone aged 40 when the single-tier pension is introduced who has always been contracted out will pay an extra £6,000 in National Insurance over the rest of their working life and will in return get an extra £24,000 state pension over the course of their retirement.
Confirming that the introduction of the single-tier pension is to be brought forward by a year to 2016, Osborne said: “Of course, if there’s no longer the old state second pension, there’s no longer anything to contract out of. For employers that means paying the same employer national insurance as those without defined benefit schemes.
“Private sector employers can adjust their pension benefits to accommodate the extra cost. Public sector employers will have to absorb the burden, as is always the case with tax changes.
“Any spending review in the next Parliament will, of course, take the £3.3 billion cost into account.
“As we have already made clear, public sector employees, and the relatively small number of private sector employees in defined benefit schemes, will from 2016 pay more national insurance then they do today.
“So they will pay the same rate of national insurance as the rest of the working population, and in return, they will get a larger state pension than before.
“For example, someone who is 40 years old when the single tier pension is introduced, and who has always been contracted out, will pay an extra £6,000 in national insurance over the rest of their working life – and in return get an extra £24,000 in state pension over the course of their retirement. That’s a fair deal. And it’s a progressive pension reform.”