Altmann calls for end of NI 'subsidies' that cost £6bn

Ros Altmann, an independent pensions policy adviser, claimed the complexity of contracting out had created an anomaly where unfunded public sector pension schemes cost taxpayers billions of pounds every year.

According to Ms Altmann, public sector workers who contract out pay national insurance (NI) contributions of 9.4 per cent instead of the full 11 per cent, while public sector employers pay just 9.1 per cent instead of the full 12.8 per cent.

Altmann claimed that by allowing these unfunded schemes to contract out, over £6bn per annum was lost in revenue each year.

She said these subsidies meant public sector workers were getting a state second pension (S2P) for free and receive it earlier than the state pension age.

Ms Altmann said the reality was that public sector workers and their employers were paying the lower NI rate today, but the Government would have to pay S2P in future, costing much more later.

She said: "Public sector workers have not contributed to their S2P, they get it for free, under cover of the complexities of the UK’s unique contracting out system.

"Ending contracting out could potentially generate significant savings for the Treasury immediately. By ensuring that workers do start paying for their S2P properly, they will have to pay the correct full rate of national insurance (NI).

"Requiring public sector employers to pay the full rate of NI would end the current hidden subsidy to public sector employment but the savings are less clear cut. These employers will have to reduce spending elsewhere in order to be able to afford the higher NI payments that they should have been paying all along.

"However, they will finally be paying the proper rate, rather than being able to employ public sector workers with an unfair advantage over private sector employers."