Peer warns of crisis in public-sector pensions

The pension scheme for council workers could be fatally undermined by the Government's insistence on making public employees pay extra, the top local government Tory warns.

A letter to the Chancellor George Osborne – signed by the Tory chairman of the Local Government Association, Baroness Eaton – warned of "strong evidence" that the higher contributions could cause a "significant level of opt-outs", throwing the "sustainability and viability" of the pension scheme into question.

Public employees will be expected to contribute an extra 3.2 per cent towards their pensions, but a recent survey by the GMB union suggested that almost two out of five could opt out if asked to pay more. The Local Government Pensions Scheme has 3.5 million members, but if hundreds of thousands withdrew their contributions, there are fears that the scheme would be unable to fund itself, leaving retired former council workers dependent on state benefits.

The letter also warned that, with job cuts and a pay freeze, enforcing the higher contributions could damage local government industrial relations.