The hon. Lady’s final sentence illustrates her prejudice against the Government’s intentions. This is not an attack on the public sector. The coalition Government are trying to ensure that public sector pensions remain across the board, so that every person in the public sector is able to access a pension, which is not the case in the private sector, as I am about to say; that they are affordable to the taxpayer; and that they are offered on very good terms. Without reform, those provisions would not be in place. I would not want to be associated in any way with an attack on public sector employees who perform services that are absolutely vital to all of our constituents. I would not want to be associated with any reform predicated on that basis, and I genuinely think that that is not the basis on which the reforms are being carried out—from the perspective of both parties in the coalition.
On coverage, 100% of public sector employees are in theory eligible to join a pension scheme, because it is offered to everyone, but only 35% of employees in the private sector are able to join a scheme, and only about a third have a contribution made to their scheme by their employer. There are many schemes in the private sector in which the employer simply does not make a contribution. There may be a scheme, but it is not funded by the employer. The biggest anomaly is in the type of scheme available to people in the different sectors, between those on defined benefit, final salary or career average schemes, and those who are on defined contribution schemes. Currently, just under 80% of people in the public sector are in defined benefit final salary schemes, but only 9% of people who work in the private sector are able to access such schemes. That percentage is falling year on year, and soon nobody will be joining a final salary scheme in the private sector. Many of them will be closed and no further contributions made by current members.
There is also the cost to the public purse of maintaining public sector pensions, which puts an onus on us to look at the case for reform. Those costs have to be shared between the Government as the employer, all of us as taxpayers, and the employees themselves, who will ultimately be the beneficiaries. Between 1999 to 2009, the cost of the NHS pension scheme rose by 47%, the cost of the civil service scheme by 23% and, as we heard from the hon. Member for Bognor Regis and Littlehampton (Mr Gibb), who is not in his seat, the cost of the teachers’ pension scheme by 37%. That has necessitated a shift in the contribution rates of the employee, who is the beneficiary, and the employer, who is the Government and the taxpayer. For instance, there used to be rough parity in the teachers’ pension scheme—the employee put in 5% and the Government 5%—but employees now contribute 6.4% and the Government about 14%. That is unfair on the general mass of taxpayers who cannot access these types of schemes. So there is an imbalance between the public and private sectors, and the cost to the Exchequer of public sector pensions is now £32 billion. Those costs cannot be allowed to grow uncontrollably.
The pension reforms must be done fairly, however, so I am pleased that there will be no change to the terms and conditions and contributions of employees who earn up to £15,000—about 15% of the public sector work force. Some 750,000 people will see no change in their pension contributions and will still be able to draw the pension they expect at the moment. Those on salaries of up to £21,000 will have their increases capped at 1.5%, so a typical employee on £21,000, after 20% tax relief—everyone gets tax relief on their pension contributions—will pay just £8 extra a month to remain in a defined benefit scheme. And, of course, employees within 10 years of retirement this April will see no change in their terms and conditions and expected pensions.
It is also entirely fair that over time we move to a career average scheme. That will benefit the broad mass of people in the public sector, who have annual salary increments but whose starting salary after inflation is not drastically different from what they start with. A final salary pension scheme, on the other hand, disproportionately benefits those in the public sector who someone described as the star performers—the people on huge incomes, the senior managers, head teachers and directors. It is fair, then, that we move to a career average scheme.
Our own arrangements, which no one has mentioned thus far, are now entirely a matter for the Independent Parliamentary Standards Authority. If, however, the public sector moves to a career average scheme, Members should expect IPSA, which now sets our terms and conditions, to move us on to a career average scheme, rather than a final salary scheme, as well.
There is no doubt that reform is needed—that is shown by demographics and the change in employment practices—and it is right that the Government are doing it in a way that is fair to public sector employees as well as to taxpayers. That will ensure that public sector pension schemes are not only the best on offer in the country but are offered on terms that are sustainable.
7.43 pm