The Conservative leader David Cameron told a meeting of businessmen that an incoming Conservative government would phase out final salary public sector pensions. The Conservatives would, if elected, move away from the pension based on a percentage of final salary, and towards a ‘defined benefit’ or ‘money purchase’-type scheme where the pension is contingent on the employee’s level of contributions.
Astonishingly, this major policy change was included in a speech to the Greater Manchester Chamber of Commerce, and has only been noticed by the Financial Times.
Pensions are a significant part of the country’s future debt liability. The issue has grown in prominence as the NHS in particular has recruited many more staff since 2000’s The NHS Plan, and has paid them more. GPs, although still mainly independent contractors, are entitled to access the NHS pension.
Cameron – “apartheid in pensions”
Mr Cameron told the Manchester meeting, “my vision over time is to move increasingly towards defined contribution rather than final salary schemes” for the public sector.
In extraordinary language, Cameron then added, “we have got to end the apartheid in pensions.” Apartheid was the system of racial division in South Africa, whereby the colonial white settlers of the country kept the black natives out of economic and political power. What exist in public sector final salary pensions is not this.
Rather, the idea of a final salary scheme is that staff accept lower pay and less good working conditions during a public sector career than they might be able to enjoy in the private sector. Such schemes will often tend to be more generous that defined benefit schemes, as for many staff, earnings usually rise over a career as they rise in the organisation. Moreover, they make public sector jobs disproportionately attractive for those over 45 with poor pension arrangements. They also have the advantage that the pension company – government – cannot go bankrupt: it simply raises taxes to cope.
However, the public sector also employs a great many cleaners, porters and administrators whose final earnings at retirement will not exceed £25,000. Dave Prentis, general secretary of Unison, told the FT that “at £7,000 a year, the average public sector pension is far from generous.”
A report by the think-tank Reform in 2007 posed the idea of ending final salary schemes for the public sector.
