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Public sector workers to face pay cut

Hospital workers

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Many NHS workers will be hit by higher National Insurance payments

More than six million UK workers could find their take-home pay cut from April after the new flat-rate state pension comes into effect.

The move, first announced in the 2013 Budget, will boost the Treasury’s coffers by £5.5bn a year.

Most of that sum will be raised from public sector employers and employees by higher National Insurance payments.

An estimated five million workers in the public sector and 1.5 million in the private sector will be affected.

They will have to pay an extra 1.4 percentage points of NI on their earnings.

Former pensions minister Steve Webb, now director of policy at Royal London, told The Times: “I think the chancellor had hoped that no one would notice this rather large tax increase smuggled out in advance as it was some years ago.”

The move involves merging the state second pension with the basic state pension.

This will abolish the current practice whereby employees get an NI rebate of 3.4% for contracting out of the second state pension to enter final-salary schemes, which affects more workers in the public sector such as in the NHS – the UK’s largest employer.

Employers will now have to pay higher NI, amounting to that 3.4% of their employees’ relevant earnings.

The government said in 2013 that the new system was fairer for the self-employed and many mothers.

Public sector employers will pay £3.33bn and employees £1.37bn more to the Treasury in 2016-17 as a result of bringing in the pension earlier, according to the Treasury.

From the private sector, employers will pay an extra £570m and employees £235m.

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