Tories divided on public sector pensions

Chris Grayling, shadow pensions secretary, has distanced himself from David Cameron’s comments on phasing out generous public sector pensions.

Mr Grayling admitted it would be “irresponsible” to propose such reforms in opposition, and said Mr Cameron had been merely ‘thinking aloud’.

Mr Cameron signalled he will cut the generous pensions schemes paid out to 4.5 million people in the public sector earlier in the week.

Responding to questions, during a Q&A at the Manchester Chamber of Commerce, about phasing out public sector pensions Mr Cameron replied: “We have got to end the apartheid.”

The public sector pension, which is immune to inflation and dependent on final salary, is enjoyed by teachers, civil servants, NHS workers, local government staff, the police force and the armed services.

At present the public sector pension scheme costs will rise from £2.3 billion last year to £3.8 billion next year and the Treasury’s total bill comes to £650bn.

Public sector workers enjoy a much more generous pension plan than the private sector because most final salary pensions have been closed to new applicants as they are too expensive.

The cost of public pension schemes will rise 40 per cent, according to the Pensions Policy Institute. The public sector pensions are worth about 21 per cent of salary, similar to a private pension which is 20 per cent, however, the private sector pensions amount to only seven per cent of an individual’s salary.

During the Q&A session in Manchester, Mr Cameron said: “We have got to be able to turn around to the rest of the public sector and say that over time it does makes sense to move towards defined contribution.

“My vision over time is to move increasingly towards defined contribution rather than final salary schemes. The government has been remarkably feeble partly because they are in hock to the public sector unions.”

Mr Cameron has made his feelings clear but will not set out his plans for a reform on public sector pensions until the next general election as he fears this would anger workers and families.

It appears Mr Cameron may have ‘gone off message’ as the party was quick to distance itself from the message.

A spokesman said: “We know public sector pensions are a big challenge. Nothing has been ruled in or out. Of course the law requires accrued rights to be protected. Before the next election we will outline the policy in more detail.

“We have always said that moving MPs onto a defined contribution scheme will help in time with public sector pensions, which everyone sees as a pressing issue. Clearly any changes would involve extensive discussions with interested parties.”