§ The Parliamentary Secretary, Privy Council Office (Mr. Ben Bradshaw)The Parliamentary and Other Pensions Act 1987 requires the Government Actuary to make triennial reports on the financial position of the Parliamentary Contributory Pension Fund. His latest report, dealing with the position of the Fund as at 1 April 2002, is published today and a copy of the Parliamentary Contributory Pension Fund Valuation Report (HC445) has been laid in the House. It includes his recommendation on the rate of Exchequer contributions to be made to the Fund, which the Act requires the Government to follow.
The new rate of Exchequer contribution will be implemented in accordance with the requirements of the Act from 1 April 2003. As the report explains, the increase is almost entirely due to a combination of the contribution holiday enjoyed by the Exchequer for the last 13 years and disappointing investment returns. Since 1990 the Exchequer has been making reduced contributions to the Fund to take the benefit of recurrent actuarial surpluses on the Fund for taxpayers. The current Exchequer contribution of 7.9 per cent. of salary compares with a figure of 18.6 per cent. which would have been required in the absence of a surplus in the Fund. As foreseen in the Government Actuary's last report on the Fund, based on the position at 1 April 1999, the surplus on the scheme has now been exhausted in this way and Exchequer contributions must revert to a level reflecting the long run costs. In common with other pension funds, the Fund has been affected by poor stock market performance over the three years covered by the Government Actuary's report. This, together with the contribution holiday, has contributed to produce a deficit in the Fund of some £25 million.
The Report also reflects some developments since the introduction of the option for Members to accrue pension benefits at a faster rate in return for higher Member contributions to the Fund. The Government 3WS took the advice of the Senior Salaries Review Body on how that option could be introduced to the scheme in a way that did not increase costs to taxpayers overall. The Review Body advised that the change could be made cost neutral if, in addition to higher Member contributions, the balance of costs falling on the scheme were met in the first instance through higher Exchequer contributions which would be taken into account and set off against the Review Body's recommendations from the next review of MPs' pay and allowances. The Review Body intends to take this into account and it will also be addressed in Government evidence to that review.
The underlying long-term ongoing cost of the pension scheme (as funded by both Exchequer and member contributions), has risen from an average of 24.6 per cent. of salaries at the time of the last valuation (1 April 1999) to 28 per cent. of salaries, an increase of 3.4 per cent. The net cost of the pension accrual rate improvement to the scheme, at 4.6 per cent. of salary, is lower than the Government Actuary's original estimate of 5.1 per cent. because not all Members have opted for the higher accrual rate. Members who have opted for the higher pension accrual rate now pay contributions of 9 per cent. of salary, while those opting to remain on the lower accrual rate continue to contribute 6 per cent. of salary. On average, Member contributions are now 8.7 per cent. of salaries. Technical factors account for the reduction of 1.2 per cent. which would have been seen had the benefit improvement not taken place.
The Government Actuary has recommended an increase in the level of Exchequer contributions from the current level of 7.9 per cent. of pay, to a new level of 24 per cent. of pay. The increase of 16.1 per cent. may be broken down as follows:
- removal of contribution 'holiday ' 10.7 per cent.
- extra contributions to eliminate deficit 4.7 per cent.
- overall increase in scheme costs 0.7 per cent.*
*The overall increase in scheme costs is shown above as 3.4 per cent. Of this, 2.7 per cent. is covered by the increase in Member contributions, leaving 0.7 per cent. to be borne by the Exchequer.