MPs’ pensions – part 1

People working in the public sector are to have their pension contributions raised, are expected to work longer before they can access them and will no longer be in final salary schemes but their pension will be calculated across a person’s career and pensions will in the future be up rated according to the inflation rate as measured by the less favourable Consumer Price Index (CPI) instead of the Retail Price Index (RPI). All these changes are proposed so that there is a fairer balance between what public sector staff pay and what other taxpayers contribute towards these pensions.

At times like this it is interesting to look at the details of the pension scheme enjoyed by Members of Parliament, which is the best in the UK, unsurprising given that they have granted themselves the power to decide the size of their own pension scheme. In 2002 they voted themselves a large pension increase for which all taxpayers have to pay.

Every year a MP works, they now accrue 1/40th of their final salary as an inflation linked pension. This is the equivalent to a payment into each MP’s pension fund of around £50,000 each year. MPs do not mention this when they complain that they are not paid enough. Most other pension schemes in the public sector allow members to accrue yearly at 1/60th or 1/80th.

After 20 years as a MP he or she will be entitled to a pension of half of their final salary. One newspaper calculated that a private sector worker to retire would have to save £2,000,000 to retire with the same pension benefits as the average politician. The judiciary have equally generous pension arrangements In comparison a nurse, teacher, local government worker and civil servant would have to work 40 years to have a pension of half their (considerably lower) final salary. Theoretically, MPs retirement age is 65, but if they have been in Parliament for 20 years or more by the time of their 60th birthday, they can retire early on a full pension.

Most years the MPs pension scheme has a considerable deficit, so MPs just vote to increase the amount of taxpayer’s money paid into their scheme, usually the vote is unanimous. In 2009 Government actuaries said that the Government was contributing 31.6% to MPs pensions and where does the Government gets its money from but the taxpayer.

Everybody in Whitehall says they want reform in regard to MPs pensions – but not yet. The Cabinet Office says it’s a matter for the Independent Parliamentary Standards Authority (IPSA) this is the body created by Parliament after the expenses row in 2009.

In 2009 Marina Hyde a Guardian journalist drew attention to MPs Pensions seeming immunity from cuts. The headline Exchequer contributions justify her verdict of a “Rhodium” plated scheme, although there was nothing outrageous in its 1960s origins.

At that time most employers were opening rather than closing pension schemes and while generous, the original accrual rate of 1/60th of final salary for each year worked was within the range for civil servants and others.

But on these foundations, MPs built more lavishly than any trade union, in 1983 they pointed out the volatility of their professional life which is to say that they unlike nurses (say), the voters can boot them out, so MPs ratcheted the accrual rate up to 1/50th Then in 2002 the year thousands of industrial workers learned that their retirement plans had gone pop with the dotcom bubble, the accrual rate was again notched up to a maximum of a 1/40th, set lump sums aside and MPs are clocking up rights twice the rate of teachers for example. Yet as the Commons shop stewards say the 12% MPS must contribute towards this top-notch accrual is on the high side, but nothing like high enough to make the sums add up.

Parliamentarians are at the very crest of a demographic wave which justifies pension cutbacks, with more women MPs and with fewer working –class members than at any point since 1918, the increase in their longevity is surely outpacing the average.

Long gone are the days when a run of miners turned MPs would die during a typical parliamentary term, which is why older Westminster watchers often remark on the rarity of contemporary by-elections. The scheme also fits ill with other public policies, if an MP falls sick he or she need not worry about facing hard nosed men from the healthcare company ATOS refusing them state benefits. He or she must merely satisfy those of his /her colleagues who serve as trustees of the pension scheme that he/she is no longer up to serving on the green benches, then the MP will then get their full pension at once topped up in some circumstances on the assumption that the voters would have continued to return him/her as an MP till their 65th birthday.

Moreover, many MPs also have a string of well rewarded private sector directorships and consultancy jobs, while already being paid handsomely to represent the interests of their constituents. The current salary of an MP is £65,738.

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