David Cameron sets out the three central arguments in the public sector pensions debate

By Tim Montgomerie
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Harry has already posted the full text of David Cameron's speech to the Local Government Association but I'm keen to highlight the three arguments he made for reform of public pensions. We'll all need to know these arguments for the coming confrontation with the public sector unions.

Argument one: We can't afford to go on like this

"In the 1970s, when a civil servant say retired at sixty, they could expect to claim a pension for around twenty years. Today, when they retire at sixty, they can expect to claim a pension for nearly thirty years – about a fifty percent increase on before. Now, obviously, more people living for longer is a great development for society. But more people claiming their pension for longer has a real life impact on our ability to pay for pensions. Indeed, we are already seeing the impact. In 2009, total payments to public service pensioners and their dependents were almost £32 billion – an increase of a third, even after allowing for inflation, compared to 1999."

Argument two: Taxpayers are paying too much towards public sector pensions

"Under the current system, the balance between what public sector employees pay in to their pensions and what the taxpayer contributes is getting massively out of kilter. Take, for example, the Civil Service Pensions Scheme. Today, employees contribute around 1.5 and 3.5 percent towards their own pension. The taxpayer, however, contributes nineteen percent. Indeed, in total, the taxpayer currently contributes over two-thirds of the costs of maintaining public sector pensions. That’s the equivalent of £1,000 a household. That figure is only expected to rise. Is that a fair? I don’t believe it is, especially when people in the private sector are seeing the value of their own pensions falling, their own pension age rise… and when, according to the Office for National Statistics, the average gross pay in the public sector is now higher than in the private sector."

Argument three: Public sector pensions will still be generous

"I can look you in the eye and say public service pensions will remain among the very best… much better, indeed, than for many private sector workers. And it’s because we are determined to do what’s fair by people who work in the public sector that we are suggesting other changes. The public service pensions system today is inherently biased against some of the lowest paid workers. That’s because, under a final salary scheme, it’s the people who reach very high salaries at the end of their careers who benefit the most. Yes, these are talented people. And yes, they are hugely important to the running of our public services. But the way the system works, it’s not the community nurse who retires on a final salary of £28,000 who gets the benefit… but the hospital consultant who leaves on a final salary of £110,000. Indeed, in some instances, for every £100 they put in their pension, higher earners can get twice as much out. Is this fair? No. It’s not. So again, in accordance with the recommendations of Lord Hutton, we are proposing to replace the final salary scheme with a Career Average scheme. This would mean that the lowest-paid do not subsidise those individuals who jump to higher salaries in the last few years of their career."