Budget 2016: Employer contributions to public sector pensions will increase from 2019-20 onward.
In his 2016 Budget speech today (16 March), Chancellor George Osborne announced that the government has reassessed the discount rate used to set employer contributions. The discount rate is based on the Office for Budget Responsibility’s (OBR’s) long-term projections of GDP growth.
The rate will be set at 2.8%, which will result in higher employer contributions to the schemes.
Osborne said: “We’re going to keep public sector pensions sustainable.
“We reformed them in the last parliament, which will save over £400 billion in the long term. To ensure those pensions remain sustainable, we have carried out the regular revaluation of the discount rate and public sector employer contributions will rise as a result.”
Paul Middleman, partner, head of public sector actuarial and benefits at Mercer, said: “The estimated increase in employer contributions for the main unfunded public sector schemes from 2019/20 is around £2 billion a year, or approximately 2% of pay, which in the Chancellor’s words “will be affordable within spending plans that are benefitting from the fiscal windfall of lower inflation”.
“In a climate where financial resources continue to be stretched, the employers contributing to these pension schemes may not necessarily agree.”