The pension age for public sector workers will rise to 66, matching state pension age, Treasury minister Danny Alexander has confirmed.
The changes confirmed this past Friday (17 June) will affect six million workers and sparked an angry outcry from unions who say ministers have sabotaged negotiations.
Public sector workers will now have to work for longer and contribute more if they want to continue receiving better pensions than those in the private sector.
Lower-paid workers will be protected from contribution hikes and those earning less than £15,000 won’t have to contribute anything more to their retirement fund, while those earning less than £18,000 will have their contributions capped at 1.5%.
This means higher earners will be forced to pay more to make up the shortfall, although the exact figures have not been confirmed.
Rise in state pension age
The government has already brought forward the rise in the state pension age, which in 2018 will be 65 for both men and women, rising to 66 in 2020.
The current state pension age for public sector workers is 60, and those in the uniformed services (police, army and fire) will be exempt from these linked pension age increases.
Alexander says: "It is absolutely wrong to pretend that public servants can be insulated from the pressures that everyone else is facing. It is unjustifiable that other taxpayers should work longer and pay more tax so public service workers can retire earlier and get more than them."
Read: "Privileged" pensioners should have benefits cut
He argues that the average 60-year-old is living ten years longer now than they did in the 1970s, and says: "It’s only right that public service workers, like everyone else, work that bit longer and contribute that bit longer to their pension."
Government ministers were not meant to make a decision on this until after the summer, and the early announcement today will anger groups who have been holding back from striking until a settlement had been reached.
Final salary schemes will also be scrapped and replaced with benefits based on a career average.
Brendan Barber, TUC General Secretary, says this is a "deeply inflammatory" public intervention. He complains that many of the detailed proposals set out have not even been put to the TUC negotiators, and the government has yet to give a response to specific proposals tabled by the trade union side.
"I have found over many years that if you are seriously trying to build trust to settle a difficult dispute, you should talk honestly and openly inside the negotiating room and exercise self-restraint outside.
"This speech, and the media-spinning operation around it, has dealt a serious blow to union confidence in the government's good faith in these talks," he adds.
Karen Jennings, UNISON assistant general secretary, mirrors this sentiment. She says it’s a "real shame" Alexander has made these comments while unions are still in the middle of detailed negotiations with the government.
"This attack on public sector pensions has nothing to do with a pensions deficit and everything to do with making public sector workers pay to clean up the financial mess left by the city bankers," she adds.
But other groups are pleased by the announcement. John Kelly, spokesperson for Square One Financial Planning, thinks this move couldn’t come soon enough.
He argues: "It is only fair that the whole economy stops subsidising a minority of its population - the public sector - whose pensions are linked to earnings and are therefore unaffected by this attack."
"The UK cannot afford its changing population dynamics. We are all living longer, for which we should all be grateful, but the price is that we need to remain economically active for longer and pay more into our pensions to support longer retirements.
"Going on strike is effectively striking against good health and long life, low inflation and cheap borrowing. Do these public sector strikers really want to return to the alternatives?" he adds.