Pensions squeeze for public sector as Tories vow to end 'apartheid'

Rising cost of final salary scheme leads party to plan radical shake-up

A Conservative Government would start to dismantle the generous pensions schemes enjoyed by 4.5 million public sector workers, David Cameron has said.

But the Tory leader will not spell out his plans in detail before the next general election for fear of provoking a backlash from workers and their families, which could harm his party's prospects on polling day. His move will put pressure on Labour to reconsider its support for the inflation-proof final salary schemes for civil servants, teachers, NHS workers, local government staff, the police and armed forces. The cost of the current scheme will rise from £2.3bn last year to £3.8bn next year, according to figures slipped out in Monday's pre-Budget report. The Treasury's total liability is £650bn. The issue is rising up the political agenda because, whichever party wins the election, the next government will be under huge pressure to squeeze public spending to balance the nation's books after record borrowing was announced on Monday.

Public sector workers currently enjoy bigger pensions than those in the private sector, where most final salary schemes have been closed to new entrants because they are too expensive. Instead, new workers join less generous money purchase (also known as defined contribution) schemes that are linked to stock market performance.

According to the Pensions Policy Institute, the cost of public pensions will rise by 40 per cent over the next 20 years. It says the average public sector pension is worth 21 per cent of salary, while a typical money purchase scheme in the private sector is worth only about 7 per cent.

Mr Cameron attacked this "apartheid" when answering questions from businessmen in Manchester this week. He accused the Government of being "remarkably feeble" on the issue. But although he mentioned state pensions, he did not go into his party's plans – and yesterday the Tories sought to play down his remarks, aware they might alienate public sector employees. A Tory spokesman said everyone acknowledged pensions are a "pressing issue".

Mr Cameron was setting out the party's "direction of travel" but the party is yet to make a decision on policy. "Nothing has been ruled in or out," he said.

The Tory leader told the Manchester meeting: "My vision over time is to move increasingly towards defined contribution rather than final salary schemes." He added: "We have to end the apartheid in pensions."

The model for an incoming Tory government would be a proposal Mr Cameron has already outlined for MPs. He has pledged to close their "gold-plated" final salary scheme to new members. The Conservatives spokesman said a Tory government would not cut payments to which public sector workers are entitled by law. "Any changes would involve extensive discussion with parties," he said.

The Government has introduced reforms under which new entrants to the public sector will work until they are 65 rather than 60. This will save £13bn over 20 years but was dismissed as "tinkering" by critics because existing workers can still retire at 60.

One option for ministers would be to reopen that agreement, but it may be reluctant to do so before an election. The Labour Party relies on trade unions for the bulk of its income and they would be hostile to change.

Brendan Barber, the TUC general secretary, said public servants saw a decent pension as a reward for doing tough jobs on pay that was often far from generous. He added: "Public servants will be frightened and deserve to be told in much more detail what the Conservatives' plans are." He said: "Unless Mr Cameron is planning to honour pension promises made to current public servants, it will cost more in the short and the medium term."

Last day on the beat... and the bill

Sir Ian Blair's last day as head of the Metropolitan Police was marked with an emotional confrontation with London Mayor Boris Johnson, who prompted the Commissioner's resignation seven weeks ago by withdrawing his support.

However, his final day was undoubtedly sweetened by the generous terms of his pay-off package, detailed below.

Total pay-off: About £1m

Lump sum: £295,000

Bonuses: £100,000

Final salary pension: £168,000 (alternative to a lump sum of £672,000)

News
people'It can last and it's terrifying'
Sport
Radamel Falcao
footballManchester United agree loan deal for Monaco striker Falcao
Sport
Louis van Gaal, Radamel Falcao, Arturo Vidal, Mats Hummels and Javier Hernandez
footballFalcao, Hernandez, Welbeck and every deal live as it happens
Sport
footballFeaturing Bart Simpson
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
News
i100
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
Arts and Entertainment
booksNovelist takes aim at Orwell's rules for writing plain English
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

Lead C# Developer (.Net, nHibernate, MVC, SQL) Surrey

£55000 - £60000 per annum + Benefits + Bonus: Harrington Starr: Lead C# Develo...

Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

Technical Sales Manager

£45000 - £53000 Per Annum plus bonus plus package: The Green Recruitment Compa...

Day In a Page

Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor