Parliamentary Pension Scheme (Hansard, 24 January 1991)

§ Mr. MacGregor

Following discussions with the trustees of the parliamentary pension fund, and subject to the views of the House, I propose to write 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 311W pensions. He subsequently held discussions with the Trustees 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 [] 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 irate in response to the Trustees' request for an increase to 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. I have made it clear that when there is no longer any surplus in the Fund Members' contributions will have to rise to meet the cost of this new level of benefit. 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. During the 17 January 1990 debate, however, 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 1/60, to 1/50 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, this might well need to be covered in a separate, subsequent Report. 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 by this April. I would like to conclude by thanking the Review Body for its last report under the chairmanship of Lord Plowden and 312W 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.