Julian Knight: Our politicians must sacrifice much more on pensions

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The Independent Online

Tory leader David Cameron has said that the final-salary pen- sion scheme for MPs should be closed to new joiners.

If this were to be approved by the politicians – and the words "cat", "hell" and "chance" spring to mind – then new MPs entering Parliament at the next election would be shunted into a money purchase scheme. This type of pension is considered inferior because the benefits are based on how much an individual pays in and the investment performance. Under a final-salary scheme, benefits are guaranteed and based on a combination of length of service and the individual's pay.

The MPs' pension plan is a whopper. It pledges to pay members – many of whom are independently wealthy – one-fortieth of their final salary for each year they are in the Commons. And in recent years MPs have been voting themselves more lucrative pensions just as millions of private sector workers have seen their schemes closed or cut back drastically.

Mr Cameron's proposal has been branded a gimmick by critics and even, in private, by some supporters. It is all part of the brinkmanship with Gordon Brown, as they both try to show the public who is tougher on the Byzantine privileges and perks enjoyed by MPs.

But one part of Mr Cam- eron's statement rang true and that was how can a government – of whatever party – hope to reform public sector pensions without putting its own house in order?

It is an inequality that public sector workers have lucrative and guaranteed (by the taxpayer) final-salary pensions while most private sector staff are shunted into poorly performing money purchase schemes or simply have to whistle. There is no longer the yawning pay gap that used to justify this disparity in retirement funding, and employees of the state also enjoy greater job security. So the conclusion has to be that we are becoming a country divided between public sector "haves" and private sector "have nots".

Britain can't afford this. People are living longer, which means the pension guarantees enshrined in the final-salary model are becoming more expensive. As a result, a hefty proportion of future tax increases, both local and national, will go towards funding public sector pensions.

A few years ago, the Government made a tentative attempt to reform state pensions, only to back-pedal furiously in the face of union opposition. Everyone knows, though, that the issue will have to be dealt with eventually, and if Messrs Cameron and Brown genuinely want politicians to have the high ground when tackling the unions, MPs need to sacrifice more than the pension rights of new joiners. They must share the pain of the private sector either by making the final-salary scheme far less generous for existing members or scrapping it altogether and making MPs save into a money purchase plan – or even the personal accounts system when it is introduced around 2012.

Then, perhaps, they can address the difficult decisions that need to be made on workplace pensions.