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Column 317Severance pay--or resettlement grant, as it is now known--is not affected by pension proposals, although it was discussed by the TSRB. It is funded directly from the Exchequer. Many hon. Members, however, have raised with me questions about both the amount paid to Members with a short period of service and the cut-off point at 65 years of age. Payment at present is equivalent to six months salary for those with less than 10 years' service, rising on a graduated scale to a full year's salary for those aged 55 and over with 15 years' service. The simplest and most socially just solution would be to assist those Members who have completed only a short period of service by making an upward adjustment and raising the cut-off point for all Members. The modest suggestion that MEPs' pension rights should be treated differently from those of Members of Parliament is clearly unjust and wrong. There is a direct link between the pension contributions of MEPs and Members of Parliament, and the suggestion that they should be able to aggregate their pensions should be acceded to. I note the point about resettlement grants made earlier by my hon. Friend the Member for Houghton and Washington (Mr. Boyes).
Certain problems have caused great distress to the dependants and staff of a deceased Member. It is completely wrong that any payments due to staff should be linked to the estate of the deceased and that the staff are asked to leave the House on the day following a Member's death because no proper structure exists to deal with that eventuality.
When a well-known Conservative Member died fairly recently, his secretary did not receive her salary or her P45 from the executors of his estate until long after his death. She had to take out a bank loan to cover her necessary expenses pending settlement of her salary from the estate. I stress that no blame whatsoever is attached to the family of the deceased, but right hon. and hon. Members will agree that that is a ridiculous system which must be changed.
A number of hon. Members have rightly mentioned the salaries and working conditions of staff in the Palace of Westminster. Although that goes wider than the immediate issues raised by the TSRB, the House must not overlook those important matters.
On Members' pensions, the House will be aware, as the Leader of the House has made clear, that a decision to deduct 9 per cent. of salary was upheld by the review body. However, that brings no increased benefits except for minor adjustments as outlined in paragraph 40 of the TSRB report. Paragraph 32 of the Government Actuary's report makes the startling suggestion that the Treasury contribution be reduced to 4.5 per cent. That flies in the face of what is accepted in industry in the private and public sectors, where the employer normally pays two thirds and the employee pays one third. The Government Actuary makes that proposal based on the Treasury contribution and the healthy state of the fund. The report of the Government Actuary is extremely one-sided because he is not empowered by legislation to comment on Members' contributions, only on the Treasury contribution. That proposal turns the basis of our pension scheme upside down.
The Exchequer contribution is based on a multiple of two with a 9 per cent. contribution from the Member. That means that the Treasury contribution should be 18 per cent. producing a total of 27 per cent. The Actuary
Column 318proposes reducing the Treasury contribution to 4.41 per cent. leaving the Member's contribution at 9 per cent., thereby reducing the total contribution to 13.41 per cent.--a dramatic reduction from 27 per cent.--all with effect from 1 April 1989.
To bring the scheme in to line with accepted practice, the Treasury contribution should be 18 per cent. making the total 27 per cent. Given the present state of the fund, nobody is suggesting that. Before the implementation of the Actuary's report, the Member will contribute 9 per cent. and the Treasury will contribute 13 per cent.--well below the usual factor of two.
If some readjustment is needed because of the high level of the fund, either the benefits should be improved or there should be a reduction of the Member's contribution as well as that of the Treasury. For instance, there could be a reduction of 2.5 per cent. in the Member's contribution, bringing it down to 6.5 per cent., and the Treasury contribution could remain at 13 per cent. Alternatively, the Member's contribution could remain at 9 per cent. and widows' and widowers' benefits should be improved accordingly.
The Leader of the House raised the matter of excess contributions. The position needs to be examined, because eventually many hon. Members will be making contributions when they can get no increased benefits because they will have reached the limit.
It is worth putting on record the fact that our salary is based on 89 per cent. of a senior principal grade. It is estimated that, when wage negotiations are taking place, civil servants' contributions are based on 6 per cent. Where is the "fair comparison"--the term used in such negotiations--for hon. Members?
A substantial increase in contribution, no increase in benefit and a dramatic reduction of the Treasury contribution, which in the short term, could have a detrimental effect on the fund cannot be right. Therefore, I hope that the debate will make the Lord President aware of the strong feelings in the House. We are asking only for natural justice which has not been obtained through the current TSRB report or by the Actuary's recommendation.
If necessary, some of the issues could and should be referred back to the TSRB. The House will certainly want to discuss the matter in more detail before any final decisions are reached.
Sir William Clark (Croydon, South) : I have read the Government Actuary's reports for 1984 and for 1987. There seems to be some illogicality in our approach to Members' pensions. According to the 1984 report, the Member was paying 9 per cent. and the Exchequer was paying 18 per cent. The 1987 report suggested that the Member paid 9 per cent. and the Exchequer 4.4 per cent. In the meantime, the fund has grown from nearly £42 million to more than £84 million, so it has doubled in the past three years. The real bone of contention is what should be done with the surplus.
In a private occupational pension scheme, if the fund increases in value to more than 105 per cent.--that is a 5 per cent. increase--the scheme must get rid of that surplus. There are two ways in which that can be done. Either the employer can take it out of the pension fund or it can be used to provide a contributions holiday. If the employer
Column 319takes out that surplus, the company pays 40 per cent. tax--the rate is higher than corporation tax. That is Government fiscal policy which was imposed because, quite rightly, the Government thought it unfair that an employer could take money out of a pension fund-- which belongs partly to the employee--without any penalty and do nothing for the employee. Consequently, companies refrain from taking any surplus out of occupational pension schemes because of the 40 per cent. immediate tax liability, which has nothing to do with the company's profits, is payable irrespective of losses and is entirely different from corporation tax.
If that is the logic of the Government--and I am sure that they have not changed their logic--in our pension fund, which in many ways is analogous to a private pension fund, why does the employer or the Exchequer effectively take the lot without any penalty? In many cases, when there is a surplus in the private sector after revaluation, the contribution holiday is invariably shared between the employer and employees. Alternatively, the pension benefits are improved. I agree with the right hon. Member for Salford, East (Mr. Orme) that, irrespective of the Top Salaries Review Body, it would be a good idea for hon. Members to consider increasing widows' benefits. In addition, something should be done to help our ex- colleagues who are suffering hardship.
Figures up to last year show that Members contributed 9 per cent. and the Exchequer contributed 18 per cent. I cannot understand the logic of the Government's argument, because, in those circumstances, one third of the surplus belongs to hon. Members and two thirds belongs to the Exchequer.
I welcome the Leader of the House saying that he will discuss with the trustees the possibility of their contribution continuing after a Member has achieved full entitlement. I remind my right hon. and learned Friend that, under the state pension, if an employee continues working after 65 the employer continues to pay his contribution, but the employee ceases to pay his national insurance contribution. That could be the yardstick for hon. Members who have paid their contributions and reached full entitlement. The Government should follow the same system as the state retirement scheme, whereby, when an employee reaches full entitlement, he makes no contribution but the Exchequer continues to pay.
I pay tribute to the trustees of the pension fund and their advisers for achieving the excellent result of doubling the size of the fund over the past three years. I am sure that all hon. Members agree that they have done an excellent job.
There is an anomaly in how we deal with the fund's surplus. It is funny that, if there is a deficit, one tries to brush it under the carpet, but when there is a surplus, arguments ensue. I am delighted that my right hon. and learned Friend said that his mind is not closed to the possibility of bringing the system more in line with the logic of private pension schemes.
Sir Geoffrey Howe : I am listening carefully to what my hon. Friend is saying, but he may be under a misapprehension about the scale of the surplus above actuarial liabilities--I am not challenging the legitimacy of
Column 320his argument--which was £7.4 million. The fund is much larger than that, but I should not like there to be any misunderstanding about the scale of the surplus.
Sir William Clark : I agree that the surplus is immaterial. I am asking why we do not follow the example of private occupational pension schemes. What matters is not the amount of the surplus but the principle involved. If a private employer removes the surplus from a pension fund, he is heavily taxed above the rate of corporation tax. Consequently, his only alternative is a contribution holiday, during which the employers' contribution is not always reduced but is usually shared between him and his employees. I hope that my right hon. and learned Friend will consider that.
Mr. Alfred Morris (Manchester, Wythenshawe) : I am most grateful to the Leader of the House for referring so kindly to my role and work and that of my fellow trustees on both sides of the House. The House will expect me, as chairman of the managing trustees of the parliamentary contributory pension fund, to give their views on both the Top Salaries Review Body's proposals--some good, some less so--and the report from the Government Actuary on the valuation of the fund, in which he recommends a cut in the Treasury's contribution from 11 per cent. to only 4.4 per cent.
As trustees who are selected by the House to manage the fund, we try our best to improve its provisions in the interests both of Members, past and present, and their dependants. There have been many improvements over recent years in which the trustees have taken the leading role, including a faster accrual rate, the age-service conditions for early retirement at a general election and the provision for ill-health retirement pensions.
There is, however, a very strong and urgent case for further improvements which are now threatened, notably by the Government Actuary's recommendation that has cut the Treasury's contribution to only 4.4 per cent. I must therefore very strongly emphasise that it is ultimately for the House to decide, not the Actuary or the TSRB, if and when further improvements should be made. The scheme is a statutory one and Members have it within their power to improve its provisions.
The staging of this debate on a motion for the Adjournment does not permit of any amendment by which the House can make decisions today on the TSRB's proposals or the Government Actuary's recommendation. The House may think that this is curiously contrary to the spirit of an undertaking given on behalf of the Government by the right hon. Member for the City of London and Westminster, South (Mr. Brooke), who was then Minister of State, Treasury, during the passage of the Parliamentary and Other Pensions Act 1987 :
"time will be made available for a debate on an amendable motion before any regulations amending the scheme are made under clause 2."--[ Official Report, 13 May 1987 ; Vol. 116, c. 371.]
This debate may not be strictly covered by the letter of that undertaking, but I know that its spirit encouraged many right hon. and hon. Members on both sides of the House to hope that today's debate would take place on an amendable motion, preferably with an all-party amendment tabled by the managing trustees.
That has not been allowed to happen and I shall therefore set out the views of the trustees and also give the
Column 321House our advice on the response that it should make to the two reports where they affect our remit. I stress the word "our" remit, as some of the TSRB's recommendations go beyond the trustees' responsibilities : for example, those on severance pay for Ministers and resettlement grants for Members.
Soon after they were published, the right hon. and learned Gentleman's predecessor made it clear that he proposed to accept the TSRB's proposals, and to give them legislative effect. It has to be said that he could hardly have done anything else, given the very tightly drawn terms of reference that he had dictated to the TSRB. Nevertheless, the trustees were grateful that the death-in-service benefit was soon to be raised to the level prevailing in most public-sector schemes--two years' salary. This is an improvement which we have advocated for some time and I welcome the right hon. and learned Gentleman's decision to give it retrospective effect. We also welcomed the proposed further improvements to the early retirement provisions. They will give many right hon. and hon. Members more flexibility over retirement and will mean that more of our colleagues between the ages of 60 and 65, who have fewer than 20 years' service, will no longer face the agonising decision of whether to take an actuarially reduced pension or to defer drawing their pension until they are 65. That is something for which the trustees, with others, have long campaigned. On a personal note, I should like here to pay tribute to the late Brynmor John, who took so informed and constructive an interest in the scheme, and whose loss to the House is still felt very deeply by all his parliamentary colleagues. The trustees are much less happy about the recommendation that the Member's contribution should remain at 9 per cent. I should explain, for the benefit of those who were not Members at the time, that the figure of 9 per cent. was not the actuarially assessed cost of the revised pension package then agreed, but rather a device to deal with a revolt over parliamentary pay among the Government's Back Benchers in July 1983. In the view of many, the figure of 9 per cent. was not only incomprehensible but reprehensible.
The latest survey of occupational pension schemes, by the National Association of Pension Funds, shows that in 1988, across the board, employees contributed 4.4 per cent. to the cost of their pensions and employers 8.8 per cent.--precisely twice as much. On that basis, in our scheme, Members would pay 6er cent. and the Exchequer 13er cent. Yet we have been paying 9 per cent. since January 1987, and to eliminate the fund's surplus--which that needlessly high level of personal contribution has helped to create--the Exchequer's stake is now reduced to less than half of the Member's contribution. That is shabby.
Under the Parliamentary and Other Pensions Act 1972, the Government Actuary is required to determine the contribution from the Exchequer that is needed to balance the scheme's assets and liabilities. This means--and it is essential for it to be very clearly understood by the House as a whole-- that the scheme cannot stay in surplus, no matter how well the investments perform.
The House needs to understand, too, a little of the history of the pension arrangements for Members, which were first introduced with effect from 16 October 1964. While contributions had to be made to the fund only from that date, pension accrued in respect of up to 10 years--
Column 322later increased to 15 years--of service prior to that date. The cost of that concession--and the Act was quite specific--was to be met by a deficiency contribution from the Exchequer, payable over 25 years. It is important to bear in mind that the 1965 Act provided for the review, and the variation up or down as necessary, of Members' contributions and/or of benefits. Under the 1972 Act, which restructured the pensions provisions, the accrued pension rights of Members then in service were improved, at a cost to be borne by the Exchequer.
In his first report, on 27 November 1973, under section 5 of the 1972 Act, the Government Actuary indicated that the deficiency contribution to fund pensions in respect of service prior to 1 April 1972 was to be payable over 25 years from 1 January 1972. It was assessed at 7.75 per cent. in that report, had fallen to 6 per cent. at the valuation as of 1 April 1984, and has now disappeared some eight years early.
When the pension accrual rate was increased under the 1984 Act, the Government promised Members the opportunity to purchase a limited number of added years at a special price--40 per cent. of the cost--which is why the facility became known as "subsidised added years". The balance of the cost- -60 per cent.--was to be borne by the Exchequer. I have to report to the House that no such contribution has been made to be fund.
All this means that the current membership is meeting the balance of a deficiency contribution which was intended to be a charge on the Exchequer. It also means that the subsidised element of the added years facility, which the Government said would be borne by the Exchequer, is effectively being paid by the current membership, some of whom did not take advantage of the facility. Others were not even Members when it was on offer. How then, with justice, can the Leader of the House possibly refuse to accept a reapportionment of contributions as between Members and the Exchequer?
The House will wish to note that improvements in the scheme are now effectively vetoed, since successful investment management merely results in a reduction in the Exchequer contribution. The more the trustees succeed, the more they benefit not members of the scheme but the Exchequer.
Mr. Ray Powell (Ogmore) : I appreciate the trustees' work in the matter, but is it true that they could have predicted a surplus accruing over the three years of the review? Would it not have been in order for the trustees to recommend extra payment of pensions, widows' benefits and so on before the three years had elapsed, so that the £7.5 million surplus could have been spent before this Government review?
Mr. Morris : I am grateful to my hon. Friend. As the fund's performance improved, we made repeated representations in support of improvements. We gave evidence to the TSRB about a shopping list of improvements that we thought were necessary. I shall refer to some of them as I proceed. If I cannot give way again, it is because I want to conclude my speech as quickly as I can although I am, of course, giving the House what is in the nature of a report from the managing trustees.
I ask the House, in considering whether and when to use its own ultimate power to alter the scheme, also to take very careful note of the fact that our scheme compares
Column 323most unfavourably with others, in terms both of the proportion of its costs paid for by Members and of some of the benefits that it provides.
There are many precedents for sharing the benefits of the contributions holiday that the Treasury is now set to enjoy in relation to our scheme. For example, the Daily Express on 4 May last reported Reed International's proposal to distribute some of the excess funds in its pension scheme, which gave some employees a 90 per cent. rise in pensions.
More recently, it was reported by the Financial Times that, as a result of surpluses in British Rail's pension fund, employees were to pay only a 5 per cent. contribution. In addition, the report states :
"substantial improvements in benefits have been made, in respect of both lump sum payments and of benefits for past service". The trustees of the parliamentary scheme are acutely aware of the insistence, on both sides of the House, that widows' pensions must be increased. This debate is an opportunity to make the Government aware of that insistence and to offer suggestions for giving it effect. For the trustees, I must point out that, with the present surplus and continuation of a 9 per cent. contribution, we could meet the request by my right hon. Friend the Member for Salford, East (Mr. Orme) to increase forthwith the maximum widow's pension from 50 per cent. to 66er cent.
Such an increase ought certainly to have the wholehearted support of the Chief Secretary to the Treasury who, in the debate on the Finance Bill on 12 July, said :
"The really unsatisfactory feature of pensions provision is the millions of ordinary scheme members who do not receive a pension anywhere near the maximum allowable under the tax rules".--[ Offical Report, 12 July 1989 ; Vol. 156, c. 1074.]
The widows of our former colleagues, many of whom live in straitened circumstances, can be added to those millions. As of now, the maximum widow's pension that can be awarded is of the order of £8,000, but I must stress that very few, if any, widows of Members can expect anything like that sum. For anyone to do so, until relatively recently, her husband would have had to serve continuously in Parliament for 40 years. Given that the average parliamentary career is no more than 17 to 18 years, a widow's pension under our scheme will average no more than £3,000. At his death in 1984, the widow of a former colleague and very close friend of mine, with total service of over 20 years, was entitled to less than £50 a week. That, too, is shabby.
Referring to the pensions paid to Members' widows in a debate on 27 April 1987, Sir Anthony Kershaw, then a trustee of the fund and the Conservative Member for Stroud, said :
"It is an absolute disgrace that this should be tolerated and even to speak of it ought to give one a sense of shock.--[ Official Report, 27 April 1987 ; Vol. 115, c. 104.]
That is but one compelling reason for resisting the reduction of the Exchequer contribution to less than half that paid by Members. As the House knows only too well, Members do not enjoy security of tenure. The nature of the job in today's world is stressful and imposes a very heavy strain on family life. It is for these, among other reasons, that the
Column 324trustees want the TSRB now to be asked to look again at the basis for determining widows' pensions. The trustees are advised--and here I pay tribute to my fellow trustee, the hon. Member for Horsham (Sir P. Hordern), who has worked long and very painstakingly on comparisons with other schemes, and who I know, Mr. Deputy Speaker, hopes to catch your eye--that current best practice in private sector schemes is to provide a widow's pension of up to two thirds of the former employee's pension.
That is what we seek and we urge the House to support a two thirds pension for widows. But it will require a re-examination of the basis upon which our scheme is funded and administered. There is evidence, as I have shown, taking occupational schemes as a whole, that costs are borne in the proportion of 2 : 1 as between employers and employees. On that basis, even at 11 per cent. the Exchequer is already paying far too little. The TSRB has on three occasions recommended that Members' and Exchequer contributions should be fixed in the ratio of 3 : 5--and the trustees see no reason why that ratio, given in response to references made to the review body by successive Leaders of the House, should not be accepted.
We must ensure that, when the fund is in surplus, the Exchequer is not the sole beneficiary. It must surely be only fair that the membership of the fund ought to see some benefit, whether by way of higher benefits or reduced contributions. I am mindful also of the claims of existing pensioners.
In a further reference to the TSRB, the trustees want the review body to be asked to consider the following changes to the fund. First, contributions to the fund should in future be shared between Members and the Exchequer in the ratio 3 : 5.
Secondly, the Actuary's triennial report on the fund should in future recommend what the percentage rate of the Member's contributions should be for a further period of three years, on the assumption that benefits continue unchanged.
Thirdly, it should be for the House to decide, if the triennial report shows the fund to be in surplus or to have an emerging deficit, whether there should be a variation in the benefits provided, in the rate of the Member's contribution, or both.
Fourthly, if the House decides on a variation in the benefits provided, the Actuary should recommend what the percentage rate of Members' contributions should be for a further period of three years, having regard to that decision.
Fifthly, regulations to give effect to any decision of the House as to benefits, and to the appropriate recommendation of the Actuary as to contributions, should be made under the Parliamentary and Other Pensions Act 1987.
Given these changes in the scheme, Members would be much better served and their dependants much better protected. At the same time, the trustees would no longer be placed in the position of seeing all their work to improve the scheme's assets result in a lower contribution from the Exchequer alone.
The TSRB might well also be asked to compare our scheme to other parliamentary schemes across the world. To give but one example, Australia has a parliamentary scheme which is infinitely better than ours.
I am glad to have been able to indicate both the current restraints on the trustees of our scheme and the way forward if we are to achieve the improvements we seek, not least for Members' dependants. I hope not only that my
Column 325proposals will be given due attention by both sides of the House, but that they will soon be translated into practice. The House has the power to make that happen.
To conclude, I must place on record, on behalf of the trustees and, indeed, all Members and their dependants, our appreciation of the quiet and painstaking, but unseen administrative work of Jim Dobson, Tony Lewis, Moreen McColl and all who work and have worked with them so unstintingly to help members of the scheme, past and present, and their dependants. The House as a whole owes them its gratitude. Several Hon. Members rose --
Mr. Deputy Speaker (Mr. Harold Walker) : The debate must conclude at 7 o'clock and as I understand that at least a dozen hon. Members will be seeking to catch my eye, I very much hope that we can have brief speeches.
Sir Peter Hordern (Horsham) : I start by congratulating the right hon. Member for Manchester, Wythenshawe (Mr. Morris) on his work as chairman of the parliamentary trustees. We have met often and have thought carefully about the recommendations that we have made. We have met my right hon. and learned Friend the Leader of the House on a number of occasions and have made proposals to strengthen and improve the existing provisions of the fund.
I begin by saying something about the nature of our fund because outside this place it may be thought that we are concerned only with improving our own conditions at taxpayers' expense. It is important to recognise the distinction between a funded scheme and a pay-as-you-go scheme. The Civil Service has a pay-as-you-go scheme and the benefits are paid according to need. It is not a funded scheme ; it does not come out of the investments that have resulted from contributions made by the employer and the employee. That is an important distinction, because we are not asking for more money from the taxpayer. We are talking about how best to reduce our demand on the taxpayer--whether that should be done by reduced contributions from hon. Members or by improving and increasing the benefits available to hon. Members and their dependants. As I have said, it is an important distinction.
I welcome very much what my right hon. and learned Friend the Leader of the House has said and his proposal to refer the debate to the TSRB. We should bear it in mind not only that the fund has done very well under the investment advisers and managers whom we are happy and fortunate to have, but that when it was last valued--the subject of the Government Actuary's report--it stood at about £87 million. However, the latest valuation is £104 million. It is a triennial valuation and as the last one was made in 1987, the next is due this year. We should ask the TSRB to look again at this whole business, because it is clear that the substantial surplus upon which the Government Actuary reported has been exceeded by recent movements in the value of the fund. That appears a good reason for an urgent review of the fund and of our benefits.
Our scheme is a funded one and hon. Members contribute 9 per cent. That is the highest rate of any funded scheme in the country. I may be wrong, but I have made extensive searches and I have not yet come across a funded
Column 326scheme in which the employees pay such a high contribution. I shall return to the comparisons later because some of those other provisions are more in line with what we should be doing. It is important to view the 9 per cent. employees' contribution in relation to what the employer pays. I agree with what the right hon. Member for Wythenshawe said about how we reached the figure of 9 per cent. in the first place. It was a great mistake. It was done rather quickly, and probably rather late at night, without anyone fully realising the consequences.
Even though 9 per cent. was decided in a moment of aberration, it is curious that the TSRB did not consider the matter seriously in the context of the total contribution made. The TSRB's latest proposal was that the total contribution required was 20 per cent., not 22 per cent. On all previous occasions, the TSRB said that the relationship between the Government's contributions and Members' contributions should be three eighths--that is, three parts Members' contributions and five parts Government contributions. That was the case in 1976 and 1983.
Only on this latest occasion did the TSRB accept the 9 per cent. contribution from Members' as correct without considering its role. That is regrettable. The role of the TSRB was to decide what contributions were appropriate for employers and employees. I hope that when it considers the position again it will revert to its former responsibility for judging what contributions should be made by Members and the Treasury.
I agree with my right hon. and learned Friend the Leader of the House that in some respects our scheme is good. We have an accrual rate of fiftieths rather than sixtieths. That is right because in general new Members of Parliament join the House in their early 40s. Sometimes they join earlier, but that is the most common age. A large number of accruals need to be made in a comparatively short period. Our scheme is not like an ordinary company -funded scheme which members can expect to join at 20 and have a long period of service. As we mostly join at 40, it is right that we should have special consideration. Fiftieths are a proper proportion.
Regrettably, there is a great deal of difference in the experiences of hon. Members. Some of us have a long period in the House and others have a short time. The turnover is significant. I asked one head of an actuarial department of a large insurance company his opinion of our starting rate of 9 per cent. He said that he could not advise any new member of any scheme that he ran to accept such a large contribution. That is a fact worth knowing.
Our scheme should reflect the nature of its membership. On the whole, we enter it late and, for some at least, there is a rapid turnover. It is important to ensure that our scheme does not provide any advantages that are not available to others in the private sector. The difference is that we pay for our contributions and we have a separate fund to which we have contributed. It is in every way our fund. The benefits that we receive come from our contributions. That is not the case with civil servants who do not have a funded scheme. However, like us, they have guaranteed index-linking. That is another advantage of our scheme.
Civil servants have some prospect of promotion. We live in a curious place which can be described only as a beehive. One spends one's early years here as a drone. Then the queen bee picks one up and one becomes a
Column 327worker. Then, before one knows what is happening, one ceases to be a worker and becomes a drone again. What sort of basis is that on which to evolve a properly run pension scheme? It is difficult to keep up with the whole business. That would not be acceptable in the Civil Service. It would not be allowed for one moment. Nor would the prospect of total extinction by an ungrateful electorate be acceptable in the Civil Service.
We have real problems in adjusting the scheme to what is proper and fair. It is fair to compare our contribution rate with the high contributions paid by firemen and the police. As I said, ours are the highest contributions to any funded scheme that I can find. It is true that firemen and the police make a higher contribution.
Sir Peter Hordern : As the right hon. Gentleman says, the reason is that they have early retirement. For example, the police retire at the age of 50. If people retire early, they can look forward to another career but for hon. Members who retire at 60 or over, the market for employment is strictly limited. Their case is not the same.
Mr. Ashton : Some of us may not have the chance to speak tonight. The hon. Gentleman has not mentioned severance pay, about which he is an expert. What about the peculiar circumstances of a person aged 49 with 15 years' service who receives six months' severance pay and has to look for another job? That is ludicrous. Have the trustees considered that and decided to increase the severance pay?
Sir Peter Hordern : We have indeed considered that, and we have made recommendations. I have no doubt that we shall do so again. I now come to the proposals that are appropriate to our scheme and those on offer in comparable public sector schemes. The police pay out sixtieths. After 20 years that is reduced to thirtieths. Policemen and women gain a particular advantage from staying in the police for over 20 years. They reach a smaller proportion than we do.
The previous proposals of the TSRB were that Members' contributions should be about 7.5 per cent. and Treasury contributions 12.5 per cent. That is the range that the TSRB normally considers. I hope that it will reconsider the matter and perhaps revert to that range. If not, we could consider what improvements could be made to the benefits and retain our 9 per cent. contribution. I believe that we should adopt that course. We would still make the highest contribution of any funded scheme.
The benefits paid under our scheme should be a model for other privately funded schemes. I shall refer to other more or less comparable schemes. British Airways has a scheme which, like ours, is fully index-linked. Members contribute 5.24 per cent. The employer pays 2.5 times as much. The retirement age is 60. The
death-in-service benefit is three times the salary. We propose, as the House knows, a death-in-service benefit of twice the salary of the person who dies.
In the British Airways scheme, widows will receive two thirds of the full retirement pension of the member. In the British Gas scheme, the employee pays 6 per cent. and the employer pays 6 per cent. Again, it is index- linked and the death-in-service benefit is two years' salary. There are
Column 328good provisions for ill health in service, too. Widows receive only half the pension but there are early retirement provisions. The same is true of British Telecom. At British Coal, the contribution by members of the staff salary scheme is 6 per cent. At present the employers are having a five-year holiday, or it would be 12 years. The House will note that the Treasury is to have an eight-year rather than a five-year holiday. Mineworkers' contributions are 5.25 per cent. of salary, and the employers pay the same. At British Telecom, the employee pays 6 per cent. and the balance of the costs paid by the employer is between one and a half and two times the employee's contributions.
It is clear that our 9 per cent. contribution is high compared with all the other schemes. I suggest that the TSRB undertakes a serious comparison with other sectors which have fully funded schemes--for example, the local government service scheme where the contributions made by the employees are substantially lower than ours and where the benefits are significantly better.
It is important that our scheme demonstrates, in relation to our contributions, that we care to provide benefits, especially for those widows and widowers who come after us. Given the nature of our careers in this place, it is wrong for those who depend upon us to be subject to the whims of the electorate and other matters ; nor is it right that they should be given such a low proportion of the final pension of a Member.
I am sure that hon. Members will suggest many other benefits that should be considered. In my opinion, the sooner the TSRB meets to consider the proposals and puts our scheme on a proper basis comparable with other public schemes, the better the House will be served.
Mr. Alan Williams (Swansea, West) : I congratulate the hon. Member for Horsham (Sir P. Hordern) on his speech and, especially, on the research and background work he has done on our behalf. He presented his case in a reasoned manner. I hope to present a case that is as well authenticated as that presented by the hon. Gentleman, but it is a slightly more indelicate one. Frankly, hon. Members have already been taken for a ride and have been ripped off by the Treasury--hon. Members may have gathered that from the information that they have already received.
We should reject out of hand the suggestion that the Treasury contribution should be dropped to 4.4 per cent. To substantiate my claim of a rip-off, it is important to look at the background to the case, as my right hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris) has done. The hon. Member for Horsham was involved in at least one meeting in the mid- 1980s to which I want to refer when we were negotiating the previous arrangements. In my then role as deputy shadow Leader of the House, I attended with Lord Dormand a meeting to negotiate, as my right hon. Friend the Member for Salford, East (Mr. Orme) does today, on behalf of the parliamentary Labour party. It is important to remember what was suggested at the time of the previous settlement and negotiations.
The TSRB proposed a substantial pay increase for hon. Members and an increase in our pension contribution from 6 per cent. to 8 per cent. to bring our contribution into line with the notional contribution then being taken into account in Civil Service pay. That proposal did not