MPs pensions

Yesterday the Commons agreed that there should not be a further additional payment from taxpayers to the MPs contributory pension scheme, which like many such schemes is in deficit.

This means that other ways will have to be examined to bring the fund into balance with the liabilities.

The obvious thing to do is to start by closing the scheme to new members, as most private sector schemes have done. This should be announced as soon as possible, so those thinking of standing for Parliament for the first time in the next General Election know the terms and conditions in advance.

We need to begin migrating MPs from the final salary scheme to a defined contribution scheme, where like others their pension depends on how much they have saved rather than a promise from the employer.

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20 Comments

  1. Posted June 26, 2009 at 6:12 am | Permalink

    Perhaps if the tax-grabs that the Prime Minisiter instituted on pensions had applied to his own publicly funded scheme, he would have left pensions alone.

    You are quite correct in saying that adequate notice should be given, and the next GE is an excellent cut-off point.

    Migration to a defined contribution scheme should also be done for all public sector staff.

    Off topic, congratulations on the reports of stopping your claims for the second home allowance. I would suggest that you have a quiet word with your collegues who live within commuting distance of London (such as my MP, Jeremy Hunt). They stand to lose significant votes by not living in their constituency; partly because many of us are expected to commute into London daily, but also because many of us don’t believe that the second homes allowances should exist at all.

  2. Posted June 26, 2009 at 6:48 am | Permalink

    It certainly would be a good example to set for the rest of the Public Pension schemes.

    Even better would be not to just close it for new entrants, but for everyone.

    Benefits to date remain, then a new money purchase scheme for all from a set date.

    Then you do not have some people on one scheme and others on another.

    You can then examine and reform all other Public final benefit schemes with some credibility.

  3. Posted June 26, 2009 at 6:48 am | Permalink

    Is the current scheme not guaranteed by the taxpayer?

    My understanding is that, in the event of an ultimate deficit, the taxpayer would have to pay anyway.

    You are quite right, however. The current scheme should be closed to new members.

  4. Posted June 26, 2009 at 7:40 am | Permalink

    “We need to begin migrating MPs from the final salary scheme to a defined contribution scheme, where like others their pension depends on how much they have saved rather than a promise from the employer.” Ahhh? ‘Bout time someone in parliament said that. I’ve been saying it for years. Hopefully it will set the precedent for state employees (and Quangocrats and local authorities) schemes – except the Armed Forces. Close all of them and migrate to DC schemes. Get the connection between wealth creation and pensions established for everyone.

  5. Posted June 26, 2009 at 8:20 am | Permalink

    It will be interesting to see whether this deters the serious minded considering a career in British politics.

    Meantime, British taxpayers continue to fund the (reported) lucrative, guaranteed pensions of EU bods and will, undoubtedly, continue to do. Recent reports of the Kinnock’s illustrate the sums involved.

    Mandleson’s pronouncement of joining the Euro pretty much confirms his aim of a Federal Europe. Abolishing the current pension system for our MP’s may undermine British politics as a ‘career’; the move equates to a large pay cut.

    • Posted June 26, 2009 at 2:45 pm | Permalink

      Pensions are defined as deferred pay, so yes this is a defacto pay cut. So what? However, as all the current state (LA and quangos as well) schemes are grossly generous (and profligately run) the ‘pay’ forgone is about the same as the income tax and NI notionally deducted from state employees salaries. It is about time that these costs were controlled. An employer (the taxpayer from private business) contribution at maximum of say 8% of gross pay plus something between 4% and 8% from the employee will suffice to provide pensions benefits of approx 50% of final salary at an NRA of 65 after a 44 year working life. As this would be a simple money purchase scheme it would be portable at current value. There would be no actuaries to muck about with a load of dubious and highly sensitive factors to work out cash equivalent transfer values.

      Now, why would this deter anyone from becoming an MP? He or she could accrue benefits in the same way from all employments over their working life and if not already doen so concentrate them in one scheme at NRA to buy an income.

      What’s the problem with that?

      The knock on benefit will be a dramatic increase in the savings rate and that will help provide pools free capital to be accessed by private business. What’s not to like?

      • Posted June 26, 2009 at 4:16 pm | Permalink

        At the last count, taxpayers are funding the equivalent of the population of Scotland (around 5m) on the government’s payroll.
        Borrowings continue for the growth in state control of public services via selected bodies, i.e. agencies. The debt to date is a three generational inheritance of soaring ‘historic’ debt.

        Whilst the Kinnocks exemplify the British taxpayer funded benefits of a guaranteed, lucrative pension for ‘Hailing Brussels’, the savings on British MP’s pensions will make no difference to the economic meltdown Blair created (abolition of clause 4).

        It may well, however, deter the serious minded from a career in ‘British politics’. It’s a contradiction in terms to save taxpayers’ money on our MP’s, whilst the government makes no attempt to cut the vast sums compliantly handed to the EU.

        No less than 8,000 Labour employees recently confirmed they do not know what their role is – taxpayer funded, of course.

        The party line is blatantly obvious – undermine ALL MP’s and Parliament – ‘Hail Brussels’ & Federal Europe – taxpayer funded ‘gravy train’ for ‘yes men’.

  6. Posted June 26, 2009 at 8:38 am | Permalink

    Credit to your party for clearly opposing the original proposal to plug the shortfall with taxpayers’ money. The government’s intention had been clear – to continue to dip into the taxpayers’ pockets. Just what will happen next is far less clear. The whole system of public sector pensions is, as you are aware, a colossal liability for the taxpayer which needs to be addressed urgently. What better starting point than MPs’ pensions?

  7. Posted June 26, 2009 at 9:03 am | Permalink

    Good thinking, sauce for the goose etc, but there could be an additional option. Given what has emerged about some MP’s and Ministers of the Crown, as well as “migration”, I wonder if “transportation” is possible?

  8. Posted June 26, 2009 at 9:28 am | Permalink

    Morning

    Once again I completely agree. But this should go further and the whole public sector system has to be overhauled, the liabilities are astonishing.

    It is good to see a rejection of a further uplift to MPs’ pensions. I was at the procedural committee vote in 2000(?) on the last uplift and only Steve Webb spoke against it and was the only dissenting voter.

    I asked (apologies my memory fails me) a Labour MP why they had not looked at defined contribution schemes.

    I added: “If the argument of greater mobility and less time served in just one job is being used as advice by FAs for the private sector worker to take DC, why has the majority of the committee argued the reverse for MPs to stick and increase their DB scheme?”

    He replied: “But DC is what we have voted on.”

    He didn’t even know what type of scheme MPs had, just saw the extra money – troughing has been going on for quite a while

  9. Posted June 26, 2009 at 9:38 am | Permalink

    MPs have one of (if not) the most generous public sector pension schemes of all with a mere 10% contribution from salary and accruing full benefits after a mere 20 years I believe. It’s all of a piece that they should continue to featherbed their own old age whilst simultaneously destroying both private and other public sector pension schemes. When one looks at what some of them have been ripping the tax payer off for it beggars belief that they ever had the gall to accuse lefty union leaders of defending Spanish practices for their members. What a bunch of morally bankrupt parasites most of them are.

  10. Posted June 26, 2009 at 10:32 am | Permalink

    Absolutely right and an excellent way for MPs to show a necessary lead. Public sector pension deficits are going to bankrupt this country unless the next Government takes drastic action of this type. The cowardice shown by Alan Johnson in backng down to public sector unions about pensions demonstrated that he was even less fit to be PM than Brown and he should not be allowed to forget it.

  11. Posted June 26, 2009 at 11:10 am | Permalink

    Off topic a little but related.

    What is your opinion of the sanctions in the leglislation being rushed through by Gordon Browns government relaing to MPs fiddling their expenses.

    Why should an MP who may have committed fraud be given a lighter maximum sentence under these proposals ( 1 year ) than say an ordinary individual who may have committed fraud and be subjecct a sentence of up to five years?

    Do you agree this is another instance of the Government ‘spinning’ the story to appear to be doing something but in actual fact they are introducing more leinent sentences for their particular group or faction?

    Reply: one of the many issues we need to ask about next week when the draft Bill is before the House.

  12. Posted June 26, 2009 at 11:12 am | Permalink

    JR: “The obvious thing to do is to start by closing the scheme to new members, ”

    The other obvious thing to do is for MPs to contribute more from their own income.

    I know someone who currently is contributing 25% of their pretax salary in order to build a pension fund.

    That fund is incidently likely to be destroyed by the governments economic policies.

  13. Posted June 26, 2009 at 1:16 pm | Permalink

    It would be about time that the public sector closed its final salary scheme to new employees. Private sector firms have already done that and are in fact a further step down the line and have started preventing current members making additional contributions to their final salary schemes, shifting them onto part defined benefit, part defined contribution schemes.

    Then perhaps we could cancel Gordon Brown’s pension altogether. It would only be fair, given how he has raped and pillaged private pension schemes.

  14. Posted June 26, 2009 at 1:22 pm | Permalink

    That would be a good start and in stark contrast to the EU. The EU put through changes to their scheme as they have a large deficit but are now taking themselves to court to overturn it, obviously at our expense.

    In the private sector stopping new entrants to the defined benefit scheme is a common first step. It’s also common that it can be followed by stopping further accrual for the existing members. However, existing MP’s could be saved this second cut for a while. The Election could see a sizeable number leave as MP’s which may have a positive affect on the deficit in the short term (going on John’s proposal). However, running a defined benefit scheme on a diminishing and ageing number of existing members could prove impossible in the longer term.

    Good to hear from an MP that sees that this is a change that is needed. It is needed also in the Civil Service and so is necessary if MP’s want to force that change on the CS.

  15. Posted June 26, 2009 at 2:03 pm | Permalink

    Following on from my last comment the EU also proposes removing the ability of pension funds to invest in Equities. Something I feared from the Bureaucrates shortly after the crash.

    This is born out of a need to reduce risk for a fund however, those that propose banning investment into Equities don’t understand risk reduction. If by being too cautious you reduce growth too low you increase the risk of loosing the value of your investment against inflation. I’ll put aside the devastating effect it would have on the economy anyway.

    There are ways of targeting a growth level above inflation by say taking short positions and clearing those at the end of the day. This means in a crash scenario the following day you have freedom to change portfolio decisions. In conjunction with other parts to the portfolio risk reduction can be done without banning investment in equities by pension funds.

  16. Posted June 26, 2009 at 4:56 pm | Permalink

    Spot on, Mr Redwood. Well said!

  17. Posted June 26, 2009 at 5:45 pm | Permalink

    The MPs scheme should close to all MPs at the end of this Parliament and the fund should be divided up, first in to a run-off fund to cover existing liabilities and second into a lump sum “pot” which is given to MPs to buy into a new, money purchase scheme. That would buy less than they have currently accrued, but that’s what is happening to almost all employees in such schemes.

    Any MPs who want to draw their taxpayer-backed, index-linked, final salary scheme can leave Parliament.

    This has two benefits. Firstly, the liabilities are covered. Second, Parliament than has the moral authority to do this across the public sector and draw a finite line under our future liabilities.

  18. Posted June 26, 2009 at 7:06 pm | Permalink

    When will people accept the fact that MPs are self-employed, in receipt of a self-employed fee from the Treasury, and not entitled employer perks.They are only entitled to the pension created by their own contributions.

    They are not civil servants, not part of the public sector employees who, of course, are fully entitled to employer sponsored superannuation.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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