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Public sector reform should be political priority

Pressure for a radical change in public sector pension funding is continuing to grow.

In a recent speech, Local Government Pension Scheme manager Bob Holloway warned that the scheme was under threat and contributions and retirement ages may have to rise. He suggested the situation was so dire that changes may be required before the general election.

Former Conservative Treasury minister John Redwood points out that 95 per cent of the Cabinet Office’s total spend for 2009-10 – a total of £7.14bn – is the civil service’s pension bill.

A recent report from the Policy Exchange, a thinktank with close links to Tory leader David Cameron, estimates the current cost of servicing the debt of unfunded public sector pension schemes is £45.2bn a year. It suggests introducing a defined- contribution scheme for civil servants, costing around £34bn.

At a time when private sector pensions are being hit by a combination of the economic downturn and ill-thought-out Government policy, it is unfair to suggest the taxpayer can continue to foot the ballooning bill for public sector pensions.

Cameron has acknowledged the need to end the “pension apartheid” between public and private sector workers but we are unsure how brave he would be in addressing the problem. With conference season approaching, the political winds may yet change and a Cameron Government with a decent majority is by no means certain.

If the Tories do achieve power, how brave they will be depends on their majority. Money Marketing urges Conservative policymakers to consider fundamental reforms which must include sweeping changes to MPs’ pensions and also target existing contributions to civil service schemes, not just new entrants. Plans should take into account the need to safeguard the pensions of lower-paid civil servants.

Meaningful reform in this area is going to be unpopular with parts of the electorate but this does not mean it should not be pursued. The Government must also come clean about the need for reform. They will be living in Cloud Cuckoo Land if they try to fight the election by highlighting Tory cuts to public sector pensions compared with their own position.

Perhaps the first question all politicians should ask is, should civil service pensions be replaced with personal accounts? If it is good enough for the rest of the population

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