Parliamentary Pensions (Hansard, 5 February 1991)

§ Mr. MacGregor

I have now written to the chairman of the Top Salaries Review Body as followsAt the conclusion of the debate on Parliamentary Pensions held on 17 January 1990 my predecessor said that he would examine what Hon. Members had said with a view to framing a future reference to the TSRB on Parliamentary pensions. He subsequently held discussions with the Trustees 120W of the Parliamentary Pension Scheme and others on both the current shape of the scheme and the implementation of the recommendations made in the review body's last report (the 26th). You will have seen that I introduced a Bill to enact those recommendations and other matters this session and the Second Reading took place on 31 January. Because of acute Parliamentary concern about the state of the Fund, we have taken the unusual step of making some changes to the Parliamentary Contributory Pension Fund (PCPF), particularly on widows' benefit, without consulting you. Nonetheless, a number of issues remain on which we would welcome your guidance. As debates in the House have made clear, the principal issue on which we need your advice is the question of the so called "balance of contributions", that is the balance between the Exchequer and Member contributions. The PCPF is a final salary scheme with the Member contribution determined on the basis necessary to fund benefits over the long term, leaving aside surpluses and deficits. Under section 3 of the Parliamentary and other Pensions Act 1987, the Government Actuary's Department (GAD), on the basis of the cost of known benefits, estimates the total contributions necessary to fund it in the long term (the total standard contribution). Since the Member contribution is fixed this yields the Exchequer contribution as a residual. Taking account of the performance of the Fund, the GAD then adjusts the Exchequer contribution to produce the rate actually paid. The effect is that the Exchequer funds deficits but, where there is a surplus, enjoys a contributions holiday. The financing system is in other words symmetrical. The Trustees of the PCPF, amongst others, take the view that the character of the scheme in which the Exchequer makes contributions in this way—taking the benefit of surpluses and making good any deficits—should be changed. Their preference would be for a system which held a fixed relationship between the Exchequer and Member contribution-say in the ratio of 5:3 or 60:40. To match the current system, such a system would need to be symmetrical with regard to both surpluses and deficits, implying that the Member and Exchequer contributions would move up or down together according to the state of the Fund. We would therefore welcome your views on the short and long term financing arrangements of the scheme and in particular what role the GAD should play. I intend that your report be debated and that the eventual government decisions on it should establish a definitive position on this issue for some considerable time to come. On scheme benefits, as I have mentioned, we have decided to improve widows' and widowers' pensions from half rate to ⅝th rate in response to the Trustees' request for an increase to ⅔rds, in the light of the debate in the House on 17 January 1990. In consultation with the Trustees the Government concluded that this was the appropriate response to Members' immediate concerns over the surplus in the Fund and the level of Exchequer contributions. This should not influence you in determining the Government's policy towards the financing of the Fund nor to what we consider the proper use of surpluses, generally. It was a specific action to meet a specific need. The Trustees have accepted this although they have made clear that a two thirds widows pension remains their objective. I have made it clear that—at any rate on the present system for financing the Scheme—when there is no longer any surplus in the Fund Members' contributions would have to rise to meet the cost of this new level of benefit and any other improvements in benefits which might subsequently be recommended and accepted. During the debates on 17 January 1990 and 31 January 1991 Members also raised the question of the accrual rate. You last looked at this in 1983 when you recommended an improvement in the accrual rate from 1/60ths to 1/50ths. I would be grateful for your views on whether a further improvement is justified and if so on the implications for contributions. I ought also to record some feeling among the Trustees and other Members that you should take account of experience in other Parliamentary schemes, both Commonwealth and European. Given the timescale, I made clear to the House on 31 January that full coverage of this aspect might well need to await a separate, subsequent Report. 121W Finally, as you will see from the debate on 31 January, there is a considerable strength of feeling in the House that the arrangements for the Resettlement Grant and in particular the cut off at age 65, should be looked at again. I recognise, of course, that you examined this matter in your 26th Report, but the Government must obviously take very seriously an expression of such widespread concern from all sides of the House that the arguments should be re-examined. A particular point highlighted in the debate on 31 January is the unique circumstances which determine the precise timing of the end of a Parliament and therefore, for some Members, the end of a Parliamentary career. The Trustees have asked that the TSRB examine this matter seriously, with an open mind and in a way which ensures that the arguments can be put before you clearly and to the satisfaction of all concerned. I have assured them, and the House, that the Government will seek your views on that basis. In view of the extent of concern in the House on this matter, I would be most grateful if you could report on it separately by the middle of April, so that the Government's response can be equally prompt. As to the balance of contributions and other matters, I would like to consider and debate your report as soon as is practically possible so that any necessary changes can be implemented speedily. (As you will see, the Bill includes a power to make such changes by secondary legislation). So it would be of great assistance if you could report on these matters as soon as possible after your separate report on the Resettlement Grant. I would like to conclude by thanking the Review Body for its last report under the chairmanship of Lord Plowden and thank you in advance for agreeing to examine these complex matters. The Trustees of the Parliamentary Pensions Scheme will join me, I am sure, when I say that we are fortunate to being able to call on the Review Body's objectivity in assisting our consideration of these difficult issues.