A SQUEEZE on public sector pensions – to be unveiled today – could backfire by forcing millions of town hall workers to quit their scheme altogether, the region’s MPs are warning.

A threatened three per cent hike in contributions, to help plug a £4bn “black hole”, could trigger a walkout by up to half the members of the local government scheme, they say.

Such an exodus would undermine the viability of the largest pension scheme in the UK, and leave millions more people dependent on state benefits in their retirement.

The warning comes on the day Lord Hutton, the former Labour Cabinet minister, publishes his final report on reforms to final salary public sector pension schemes.

In an interim report last October, Lord Hutton said an immediate one per cent increase in employee contributions would save the taxpayer £1bn.

Meanwhile, Chancellor George Osborne announced that he planned to hike contributions by three per cent gradually from April next year.

One calculation is that, if staff earning less than £24,000 are protected from rises, those earning £24,001 to £31,500 would see their contributions leap from 6.5 per cent to 9.7 per cent of their salary – at a time of pay freezes.

Now seven North-East MPs – Jenny Chapman (Darlington), Grahame Morris (Easington), Pat Glass (Durham North West), Ian Mearns (Gateshead), Ian Lavery (Wansbeck), Ronnie Campbell (Blyth Valley) and Mary Glindon (Tyneside North) – have called for a rethink.

Ms Chapman said: “The danger is that this change will result in workers opting out of the existing scheme, which will make it less viable.

“No one can deny that there is a problem with public sector pensions and that something needs to be done, but the Government needs to be exceedingly cautious.”

In today’s final report, Lord Hutton is expected to recommend higher employee contributions, while stopping short of an explicit figure.

The study is also likely to recommend: 􀁥 Pensions based on career average – rather than final – salaries, but only for new contributors; 􀁥 Scheme pension age linked to the state pension age; 􀁥 A ceiling on taxpayer contributions to public sector pensions.

The report will be hailed as bringing public sector pensions more closely into line with schemes run by private companies, which have been severely curtailed in recent years.

According to Treasury figures, the current £4bn shortfall in public sector pensions will rise to £10.3bn by 2015-16, if no action is taken.