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Last Updated: Tuesday, 18 October 2005, 13:04 GMT 14:04 UK
Deal on public sector pensions
Alan Johnson
Alan Johnson, Trade and Industry Secretary, welcomed the deal
Trade unions and the government have agreed a deal over the future of several public service pension schemes.

The TUC says the government has dropped its suggestion that current members of the health, civil service and education schemes should retire later, at 65.

In exchange the unions have accepted that a higher retirement age will be phased in for new staff.

The TUC said the agreement was a "sensible compromise" which meant that pensions promises would not be broken.

The trade union organisation hailed today's agreement as a major breakthrough which it would recommend to its members.

The government had originally proposed that a higher retirement age be introduced for the existing pension scheme members from 2013.

The TUC said its members now "need suffer no detriment in their pension arrangements".

This deal is unacceptable from the standpoint of British business
David Frost, British Chambers of Commerce

Trade and Industry Secretary Alan Johnson, who has been leading the government's negotiations, was also pleased with the deal.

"This is quite a breakthrough because the normal pension age in education, health and the civil service will be 65 for new entrants from next year," he said.

But business leaders were furious and claimed the government had caved in to union pressure.

Detailed negotiations

Each of the pension schemes for health, civil service and education staff has its own rules and regulations.

They accepted all the facts about demographic change; they accepted the need to move to 65 as a normal pension age
Alan Johnson, Trade & Industry Secretary

The shape of any future schemes for new employees will now be negotiated in detail.

According to the TUC, the government has agreed that new schemes will still be linked to earnings and be index-linked to protect them against inflation.

Also, retirement at 60 will still be an option if future staff wish to fund retirement at that age by making higher contributions.

But according to Alan Johnson the unions "accepted all the facts about demographic change; they accepted the need to move to 65 as a normal pension age".

Negotiations over the local government pension scheme and firefighters scheme are taking place separately and a TUC spokesman said they were nowhere near as advanced.

Dave Prentis, the general secretary of the trade union Unison, said: "We want the principles established here to be applied to the local government scheme. These principles have been endorsed by the Cabinet.

"It is important that the promise made to teachers, health workers and civil servants applies also to the more than 1.3 million local government workers."

The government first started proposing changes to the various public service and local government pension schemes last year.

Although they have different features, a common theme of the government's plans has been a raising of the standard retirement age, typically to 65, instead of 60.

The aim has been to cut the cost of running the pension schemes, which has been rising partly because people have been living longer.

Union opposition

The TUC's annual conference in September was told that 13 different unions, representing more than three million public sector workers, would engage in the biggest industrial action since the 1926 General Strike if the government pressed ahead with its plans.

But business organisations have been pressurising the government to act to extend the retirement age immediately.

The CBI recently demanded that public servants work longer before retiring.

On Monday, the British Chambers of Commerce (BCC) complained to Tony Blair that it was unfair for the public employees to have better pension arrangements than private employers.

David Frost, director general of the BCC was furious at today's agreement: "This deal is unacceptable from the standpoint of British business.

"The government needed to grasp the nettle and increase the public sector retirement age for existing employees on a sliding scale. They have failed to do this," he added.

And David Willets, the Shadow Trade and Industry Secretary, criticised the move.

"There is a growing divide between public and private sector pensions which cannot be sustained," he said.

"At this rate it could take forty years for the public sector retirement age to rise. The Arctic ice cap is melting more rapidly than the Government is reforming public sector pensions."

Watch how the deal will work

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