Tory leader sparks debate with comments on public-sector pensions
28 November 2008
Conservative leader David Cameron has suggested his party would reform public-sector pensions if elected, in a bid to tackle what he referred to as “pensions apartheid”.
In a speech to business leaders in Manchester, the opposition leader signalled his view that the days of unfunded final salary schemes were numbered and that he would like to see the public sector move towards defined contribution alternatives.
“We have got to end the apartheid,” Cameron said. “We are getting into a situation where pretty much everyone in the private sector has gone to defined contribution rather than final-salary schemes… there is an issue of fairness between the private sector and the public sector but there is also an issue of economic efficiency.”
He accused the government of being feeble on the issue because of its links with public-sector unions, and said that he would end MPs’ generous final-salary scheme to set an example. Public-sector pensions are a growing financial burden on the state, with an estimated current liability of £650 billion.
Around 5.2 million state employees, 90 per cent of the public sector overall, enjoy final-salary pensions funded by the taxpayer, which pay a guaranteed sum in retirement based on their final salaries. By comparison, only 16 per cent of private-sector staff have a final-salary pension, funded by their employers. Defined contribution plans, in which the employee bears the risk of investment, and income is variable rather than guaranteed, are much more common in the private sector.
Cameron’s comments provoked a backlash from unions. “This will come as a bolt from the blue to the millions of hard-working public servants that see a decent pension as a vital part of their reward for doing tough jobs on pay that is often far from generous,” said Brendan Barber, TUC general secretary. “It is the kind of issue that could make the difference in marginal seats at the next election.”
Conservative officials stressed that no reform of public sector pensions would happen without extensive discussions with unions and stakeholders.