THE PENSION reforms are not just about saving money. They are about striking a fairer balance between what public sector workers pay and what other taxpayers pay as we all live for longer.
Over the past decade, the taxpayers’ public sector pension bill has risen by a third in real-terms. And in five years’ time we’re set to spend £33bn per year on public sector pensions – more than on police and transport combined.
That’s because in the 1970s, when a civil servant retired at 60, they could expect to claim a pension for around 20 years.
Today, when they retire at 60, they can expect to claim a pension for nearly 30 years – an increase of about 50 per cent.
We have the greatest respect for the men and women who keep our vital services running and under current proposals public sector pensions will still be among the very best.
We have said that from April 2012 we will be phasing in an increase in contributions.
But those earning under £15,000 will see no increase, while those earning between £15,000 and £21,000 will see the increase capped at 0.6 per cent.
The largest increases will be borne by the higher earners – for example in the Teachers’ Pension Scheme, those earning over £112,000 would see an increase of 2.4 per cent, while those earning £30,000 would see an increase of just 0.9 per cent.
The taxpayer currently contributes over two-thirds of the costs of maintaining public sector pensions. In the civil service pension scheme employees contribute between 1.5 and 3.5 per cent of their salary, while the taxpayer contributes nearly 19 per cent.
Our reforms mean that the costs of these pensions are more fairly spread between public servant and taxpayer.
Our proposals are fairer on public sector workers, too, because the defined benefit will be linked to career average salary and not final salary.
This means that everyone will get broadly the same amount for every pound put in.
As Lord Hutton put it ‘the unfairness of big benefits to high flyers is removed’.
Without reform, private sector workers would have to work longer and pay more tax to pay for public sector workers to retire earlier and get more in pensions.
And what about MPs?
David Cameron has been clear that MPs are public sector workers too and should be subject to exactly the same changes we are asking others to take on because right across the board the increase in contributions is needed to create a fairer, more sustainable long-term pensions system.
MP for Horsham and Cabinet Office Minister