FIVE MILLION teachers, police, firefighters and town hall staff will have to contribute up to two thirds more to fund their final-salary pension schemes under plans drawn up by Gordon Brown.

The Times understands that all public sector staff will lose generous benefits for early retirement due to ill health as part of Treasury proposals to curb a £380 billion retirement bill. Stricter medical tests for those unable to work in any occupation will be imposed.

Senior council workers on higher pay bands will have to increase their pension contributions the most as payments are linked more closely to salary. A senior official earning £80,000 a year would see his or her contributions rise from 6 per cent to 10 per cent, an increase of £3,200 a year.

NHS workers and civil servants will also be affected by plans to overhaul their pension schemes which are to be published shortly. The Civil Service pension scheme may lose its traditional link with final salary.

The changes, which vary between departments and will be introduced between 2008 and 2013, are based on government plans to raise the public sector retirement age from 60 to 65. They are aimed at reducing the rising costs of pensions as workers live longer and at ensuring that people do not abuse sickness benefits.

Unions are gearing up for a long hard winter fighting the proposals. They claim that the schemes will force staff to pay more for fewer benefits and that public sector pensions have been more generous than private sector ones because the salaries are lower.

The Government is keen to introduce a two-tier system for ill-health retirement to stop people leaving early when they are still fit to work in some capacity. At present staff can retire early on health grounds and get enhanced pension entitlements equivalent to almost another seven years worked. But teachers, firefighters and local council workers will not get enhanced benefits under the proposals if they are no longer fit for their profession but could find work elsewhere “such as stacking shelves in B&Q”.

They will get the equivalent of a full pension — more generous than present terms — only if they are physically or mentally incapable of any form of work, to be confirmed by tighter medical tests.

Under the proposals for local government, which were discussed last week in a heated meeting at the Office of the Deputy Prime Minister, most staff will have to pay more than their current 6 per cent contribution. John Prescott has proposed a sliding scale of contributions so that those on lower salaries would pay less than higher earners.

At present, local government workers pay about 6 per cent of their salary into the scheme, with local government employers paying about 12 per cent. Under the new scheme the ratio would change so that staff would pay on average 7 per cent and the employers 10 to 11 per cent. If a sliding scale were introduced, those on salaries of £5,000 or less would pay only 2.5 per cent. Those earning £5,000 to £7,000 would pay 5.5 per cent, while those earning up to £38,000 would pay 7 per cent. Senior staff earning up to £80,000 would pay 9 per cent and those earning over £80,000 would pay 10 per cent.

Teachers’ unions said that any attempt to introduce a sliding scale would be opposed, particularly by head teachers. The unions are already opposed to changes which will lead to a 25 per cent cut if they retire at 60 rather than 65. “We are facing enough battles over our pensions without another hit over contributions,” David Hart, general secretary of the National Association of Head Teachers, said.

The Local Government Association is pressing for a common pension scheme across all the public sector. Councils are already facing a £12 billion deficit in pension funds because of stock market falls, and early reports from the government actuary suggest that they will face a further £300 million shortfall in three years.

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