Parliamentary Pension Scheme (Hansard, 30 March 1995)

§ Mr. Newton

In my letter of 29 September, I invited the Senior Salaries Review Body to undertake a review of the parliamentary pension scheme to assess whether the scheme was still in line with good current practice. This was the first of the regular reviews resulting from the review body"s recommendation, in 1991, that it should review the scheme regularly at the time of the Government Actuary"s triennial valuations of the parliamentary contributory pension fund.

The SSRB report has been published today, and a copy has been placed in the Library of the House. Copies are also available in the Vote Office. I am most grateful to the review body for its thoughtful and thorough report.

The SSRB has recommended that:

i) the existing accrual rate of fiftieths should apply to all service for currently sitting MPs in respect of their future pension entitlement, with appropriate augmentation for those who have been making up the shortfall voluntarily;
ii) the death in service gratuity should be increased to three times the Member"s annual salary;
iii) the scheme should allow Members to nominate individuals, institutions and trusts to receive the death in service gratuity;
iv) a formal dispute resolution procedure should be established involving three stages, with questions directed first to the fund secretary, secondly to the trustees themselves and, if still unresolved, referred to an independent expert such as the occupational pensions advisory service or the pensions ombudsman.

The Government propose to accept all these recommendations, except the backdating of the fast rate of accrual introduced in 1983. A retrospective change of the kind suggested would not be justified.

The Government Actuary"s valuation report on the PCPF is today being laid before the House in accordance with section 3 of the Parliamentary and Other Pensions Act 1987.

Since the previous valuation in 1990, the fund has grown by about 38 per cent.: the market value at the valuation date was just over £150 million. Income from investments over the period has been less favourable than assumed in 1991, and the level of pensions increases has been slightly higher, although these are now decreasing.

The overall financial position shows little change from 1990. The current valuation discloses a small excess of assets over liabilities of £1.1 million—which is less than one per cent. of the value of the fund—after taking account of the implementation of the benefit 741W improvements and reductions in contributions agreed at the time of the last report.

Taking account of the improvement in the lump sum death in service benefit, the assessed long-run total cost of the pension benefits under the scheme is now 24 per cent. of salary, compared with 23.5 per cent. at the 1990 valuation. The Member contribution was reduced in 1990 to 6 per cent., as a result of an SSRB recommendation. Under section 3 of the 1987 Act, the Exchequer pays the balance of costs, as recommended by the Government Actuary. Without the increase in benefits, the Exchequer contribution would have remained at its level following the 1990 valuation, of 6.8 per cent. of pay, for a further six-month period. Taking account of the benefit improvements recommended by the SSRB in the report published today, the actuary recommends that the Exchequer contribution from April should be 7.6 per cent. until September 2000. Assuming future experience is in line with the assumptions made for this valuation, the Exchequer contribution can then be expected to increase to 18 per cent.

As required by section 2 of the 1987 Act, I shall consult about the changes to the scheme with the trustees of the scheme and other interested parties. As is customary, the Government will hold a debate on an amendable motion to give the House a chance to consider both reports, as well as the draft regulations implementing the SSRB recommendations.