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Session 2001- 02
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Delegated Legislation Committee Debates

Parliamentary Pensions (Amendment) Regulations 2002

Third Standing Committee on Delegated Legislation

Tuesday 23 July 2002

[Mr. John Cummings in the Chair]

Parliamentary Pensions (Amendment) Regulations 2002 (S.I. 2002, No. 1807)

10.30 am

Mr. Steve Webb (Northavon): I beg to move,

    That the Committee has considered the Parliamentary Pensions (Amendment) Regulations 2002 (S.I. 2002, No. 1807).

Good morning, Mr. Cummings. I have discovered over the past week that opposing pension improvements for my colleagues and friends is not a way to win friends and influence people. My reason for not supporting the regulations this morning is my concern about their impact on the taxpayer and the way in which we are seen. I am aware that it is not a party issue, that some members of my party do not agree with my views and that members of other parties do. I am speaking in a purely personal capacity this morning.

My starting point is that we already have a very good pension scheme. That is not merely my opinion, but that of our independent pay review body—the Senior Salaries Review Board. Last summer, the SSRB examined our pension arrangements and was explicitly asked to consider whether the accrual rate under the scheme should improve from fiftieths to fortieths, as proposed in the regulation. It looked at what other people were getting and other relevant comparators. In its report, which was published last summer, it concluded:

    ''It remains the Review Body's view that the right comparators . . . are posts of equivalent job weight in the public sector or professional arena''

and that its research

    ''indicated that benefits on retirement for private sector employees at comparator levels accrued at the rate of 1/55th'',

which is already less generous than the previous accrual rate that we enjoyed. It goes on to say:

    ''In the public sector an accrual rate better than 1/60th is exceptionally rare. In our view the current 1/50th rate is fair: its relative generosity helps to compensate for the unusual features of an MP's job.''

It took account of issues such as how long we can expect to be here and how employable or otherwise we might be when we leave, and even taking account of those things, it felt that fiftieths were adequate.

Mr. John Butterfill (Bournemouth, West): I am sorry to interrupt the hon. Gentleman so early in his speech. Does he appreciate that in many of the public sector schemes to which he referred the accrual rate is more apparent than real? Those public sector schemes often allow for a tax-free lump sum of one and a half times salary on retirement. That has the effect of reducing the real accrual rate because there is no

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corresponding loss of pension, whereas if hon. Members take a tax-free lump sum there is an actuarial reduction in the pension payable.

Mr. Webb: I certainly defer to the hon. Gentleman's knowledge of those matters, which is probably unparalleled in the House. However, I also respect the SSRB's ability to take account of those things and draw valid comparisons. He implied that it has not adequately taken account of those factors, but if we ask an independent body to consider the matter and it concludes on comparator employments, having considered all aspects of the schemes, that we have a relatively generous scheme—it is one step removed—I am prepared to accept its judgment.

Mr. Barry Gardiner (Brent, North): I am grateful to the hon. Gentleman. The Senior Salaries Review Board was asked to look at a change in the accrual rate funded by the Exchequer. Today we are considering a change in the accrual rate that will be funded by Members of Parliament with the exception of the 2.1 per cent., to which I am sure he will come. The Exchequer will fund it for the next two years, but it will be clawed back against MPs' salaries. There is a fundamental difference between asking the Exchequer to fund it, which is what the SSRB considered, and asking MPs to fund their own pension increases.

Mr. Webb: I agree with the hon. Gentleman up to a point. I certainly agree that it is important to look at what questions a review board is asked. However, the comments that the SSRB makes seem to be irrespective of who pays. I am not reading selectively—I shall come on to being selective about what the SSRB says in a moment. It does not say here that MPs could have better schemes if they were willing to pay for them. It simply says that, for people who do the sort of job that we do, a pension scheme accruing at such a rate is already relatively generous, and it opposes any further improvements.

Mr. Gardiner: Will the hon. Gentleman give way on that point?

Mr. Webb: No. I do not want to hog proceedings, and I am sure that the hon. Gentleman wants to make his own contribution. I shall move on.

My first point is that we start with a very generous pension scheme, a point with which I am sure most of our constituents would agree. In my view, it is already generous enough. When the House considered the matter last summer, the Leader of the House warned against approving a move from fiftieths to fortieths. He said

    ''We would ask hon. Members, before taking their decision, to reflect on whether Members of Parliament can accept an even wider gap than already exists in the rate of accrual between our pension scheme and the schemes of those who work in our hospitals, schools and local authorities.'' —[Official Report, 5 July 2001; Vol. 371, c. 426.]

In other words, the Leader of the House was unhappy about the improvement to the accrual rate. When it came to the Division, he voted against an

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improvement in the accrual rate paid for by the taxpayer. I know that several hon. Members in this Committee also did so.

I mention in passing that one lesson to be learned from the episode is that such matters deserve better scrutiny when they first arise. We should all reflect on that. We had two and a half hours last summer in which to consider salaries, allowances for us and for our staff and pensions. After the introductory speeches by the principal parties, the only substantive Back-Bench speech on this pensions issue was that made by the hon. Member for Bournemouth, West (Mr. Butterfill). He made quite a strong speech in favour of taxpayers meeting the entire cost of the improved accrual rates.

I recall on that day colleagues asking me to explain which vote was happening and what the debate was all about. The shadow Leader of the House, the hon. Member for Tiverton and Honiton (Mrs. Browning) said at the time that two and a half hours was not adequate to discuss all those matters. I cannot help feeling that we would not be here today if we had had a proper full debate then. If hon. Members had realised the implications of what they were voting through, it might well not have got through.

Mr. Butterfill: Can I point out to the hon. Gentleman that I was speaking at that time not as a Back Bencher, but in my capacity as chairman of the trustees of the parliamentary contributory pension fund?

Mr. Webb: I apologise. I did not mean any disrespect to the hon. Gentleman.

We have a good scheme to begin with. I am sure that the hon. Member for Bournemouth, West will point out that the Exchequer has not been paying the full necessary contribution for some years. However, in the most recent report on the scheme, it is proposed that, from 2004, when things return to a more steady state, the underlying position of the scheme, leaving aside today's improvements, will be that Members pay 6 per cent. and the Exchequer 18.6 per cent. A combined contribution will go in of roughly one quarter of our salaries. The value of the improvements that we are discussing today would take that up to nearly 30 per cent. of our salaries. From 2004, 24.6 per cent. will go in anyway; today's improvements will add another 5.1 per cent.

Anyone who has 25 per cent. of their salary going into a pension scheme already has a very good scheme. Anyone who has nearly 30 per cent. going in has an extraordinarily generous one. As I said, I am aware that in recent years the Exchequer has not put all that in and that the value of the assets in the fund has decreased quite significantly, but that period is coming to an end. It seems fair to point that out, because we are looking ahead at where the scheme is going.

Mr. Gardiner: I now understand why Disraeli made his remarks against the Liberals about lies, damned lies and statistics. The hon. Gentleman has just mentioned the figure to which the Exchequer will revert—just over 18 per cent. As he well knows, the figure is currently 7.5 per cent. However, we are

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debating the changes to the scheme as a result of the change in accrual rate. The figure that he quoted as the underlying, balancing figure that the Exchequer will contribute from 2004, is absolutely unchanged by the proposals. Therefore, it is wholly irrelevant to the debate. He must confine himself to the changes that are being undertaken in the regulations. It would also be helpful if he acknowledged that for many years the Exchequer and hence the taxpayer, have not been paying the full balancing figure because of the trustees' success in managing the fund.

The Chairman: Order. Interventions should be short.

Mr. Webb: Thank you, Mr. Cummings. When we are judging whether the scheme needs to be improved and are considering how it should be paid for, the generosity of the starting point is entirely relevant. The fact that we already have an extremely generous scheme is absolutely germane to whether we should be trying to improve it, especially given that the taxpayer will be chipping in, at least for a transitional period. If we had a grotty pension scheme, our constituents might well feel that it was not adequate and might welcome the fact that the regulations will improve it.

Mr. Gardiner: Will the hon. Gentleman give way?

Mr. Webb: No, I will not.

The generosity of the existing scheme is entirely germane to our considerations. Indeed, our 6 per cent. does not even cost us 6 per cent. of our salaries, but probably less than 4 per cent. because we all get higher rate tax relief on it. Therefore, the taxpayer is already contributing money to the scheme.

Last summer, the House voted narrowly—by about 43 votes—for improved accrual rates in the regulations to be funded entirely by the taxpayer. Understandably, the Treasury's view was that it was not appropriate for the taxpayer to pay the cost in full. Earlier this year, the SSRB was asked to examine how such improvements might be funded. The SSRB duly did that and, on 18 June, wrote to the Leader of the House with its views. I inquired via the Library last week whether we could have a copy of the SSRB's report—there was some uncertainty at that point from the office of the Leader of the House as to whether we could see it. I am grateful that yesterday the document was made available to us.

It is instructive to consider the contrast between what the SSRB said about the improved accrual rate and how it should be funded, and the written answer of the Leader of the House on the matter on 15 July:

    ''The SSRB has now reported. In brief''—

that is an important phrase—

    ''they recommend that the cost of the faster accrual rate, which is estimated at 5.1 per cent. of pay, should in the short-term be split with Members contributing 3 per cent. and the Exchequer contributing 2.1 per cent. The SSRB further recommends that this additional Exchequer contribution should be taken into account in subsequent reviews of MPs pay so that eventually the full cost of the accrual rate is borne by MPs.''

The next sentence is critical:

    ''The Government accept these recommendations of the SSRB.''—[Official Report, 15 July 2002; Vol. 389, c. 84W.]

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The written answer is entirely accurate, but it is very selective. When I read what the SSRB had actually written to the Leader of the House, there were far more caveats, qualifications and reservations than—let me put it charitably—my reading of the written answer had indicated. The written answer made me think that the SSRB were on board and recommending such changes. Actually, the tenor of its reply is very different. It begins with a confirmation that the Leader of the House had properly noted in his letter to the SSRB that the vote of the House last summer went against the SSRB's recommendation. The SSRB then said in its letter that it had taken evidence on the matter and asked the Government actuary to consider it. The Government actuary reported to the SSRB that

    ''there is little evidence of improvements in the level of benefits in final salary schemes in recent times, except where employees themselves are bearing all or most of the costs. On the contrary, for well understood reasons, there has been a trend towards the closure of defined benefit schemes''.

In other words, the Government Actuary pointed out to our independent review body that, in the 12 months since the matter was first raised, schemes had become worse, not better, unless improvements were largely paid for by members. In general, the schemes that our constituents are part of have become worse, not better. That is the first point in the SSRB's letter to the Leader of the House.

It then responded to the points that were put to it by the trustees of the scheme, who suggested—I paraphrase loosely; I am sure that the hon. Member for Bournemouth, West will correct me if I am wrong—how unemployable we all are. The general tenor is that in our 50s we find it difficult to resume previous employment or to get suitable employment elsewhere. This is a remarkable quote from the letter:

    ''It was also put to the review body that a lack of current experience in previous professions and an outdated knowledge of workplace changes made it more difficult for members to gain re-employment.''

There cannot be many walks of life where one writes a letter to someone explaining how unemployable and out of touch one is and, as a result, one gets a better pension. Again, our constituents would want to query that.


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Prepared 23 July 2002