A far-reaching strike across the public sector on pensions was averted yesterday when the government and unions agreed a framework deal in which existing workers will still have a retirement age of 60, but the pension age for new workers from next year will be 65.
Ministers had wanted to raise the retirement age to 65 for existing workers, but dropped this demand yesterday. The government said the deal agreed with the unions would save the taxpayer a cumulative £13bn at today's prices by 2050.
The reforms have been forced on government due to the rising pension bill stemming mainly from longer life expectancy.
The outcome was welcomed by unions and defended by Alan Johnson, the industry secretary. But it was criticised by business leaders who said the government had failed to tackle the pensions deficit.
The negotiation covered 3 million workers in health, education and the civil service. Details will be negotiated pension scheme by pension scheme but under the agreement, the outcome must save 2% of the wage bill, of which 1% can be recycled into improving government schemes. It leaves talks in local government unsettled where employers are determined to raise the pension age to 65 for all workers.
Sir Digby Jones, director general of the employers' organisation the CBI, said: "This is a bad deal for the taxpayer. The government has capitulated to the threat of public sector strikes and conceded that 21-year-old civil servants can retire aged 60 in 2044. Lucky them at a time when private sector employees face the reality of longer working lives."
David Frost, director general of the British Chambers of Commerce, said the deal was "very bad news for business", and added: "On the one hand, we have the private sector workforce being told it must work longer and put more money into their own pension pot, but here we have the public sector workforce who can still retire at 60."
Yesterday's deal means that new government employees will be able to join a final salary pension scheme, with the assumption that their retirement age will be 65. But new workers will be allowed to retire earlier than 65 in return for higher employee pension contributions. Mr Johnson, a former union leader, said the deal meant public sector workers would continue to get good quality pensions, but the normal pension age for new workers would be 65.
Research by the Pensions Policy Institute published earlier this year suggests that public sector pensions will remain better than those in the private sector.
The TUC's general secretary, Brendan Barber, who led the unions' negotiations, said: "This is a real change of heart by the government. [It] has accepted that today's public sector staff should not have their pensions promise broken." Yesterday's rise in inflation to 2.7% means the state pension for a single person is likely to rise to £84.26 a week from April.
The Liberal Democrats' pension spokesman, David Laws, said: "The government must provide a pension which is no longer falling further and further below the poverty line."
