Parliamentary Pensions (Amendment) Regulations 2002

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The Parliamentary Secretary, Privy Council Office (Mr. Ben Bradshaw): This statutory instrument has been so widely misrepresented and misreported that I want to start by reminding the Committee how it came about. Last July, the House debated the Senior Salaries Review Body recommendations on Members' pay and pensions. In its March 2001 report, the SSRB made the following eight recommendations: that the lump sum death-in-service payment be increased to four times annual basic salary; that the rules ending a widow or widower's pension on

remarriage should be changed; that service in other United Kingdom parliamentary assemblies should be recognised in the Westminster pension scheme; that the trustees of the parliamentary pension scheme should explore the merits of establishing a parliamentary transfer club; that all dependent children should be treated equally; that the rules of the fund be checked to ensure no systemic discrimination; that former Members of the House of Commons who become paid office-holders in the House of Lords should not have their pensions abated; and that the trustees should canvas the views of Members on the issue of survivor pensions for unmarried partners.

The Government accepted all the SSRB's recommendations, with the exception of recommendation 2 on the stopping of a widow's pension on remarriage. We do not believe that that improvement should be made at Exchequer cost. Following the debate last year, to which the hon. Member for Northavon (Mr. Webb) referred, it was agreed that the trustees of the pension fund would be

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asked to consider how best to implement recommendation 2, but at no additional cost to the Exchequer, and to consider recommendation 4 on establishing a parliamentary transfer club, recommendation 6 on checking that the rules of the fund do not breach equality guidelines, and recommendation 8 on extending pensions to unmarried partners. The House accepted an amendment tabled by the hon. Member for Oxford, West and Abingdon (Dr. Harris) that survivors' benefits could apply to unmarried partners as well as spouses, thus giving the trustees a clear steer on their work on recommendation 8. The trustees reported on 5 July, so there has not been sufficient notice for the Government to reach a view on those proposals and whether they protect the taxpayer against any additional cost. We expect to bring forward proposals to the House in the autumn.

The matter that has aroused most comment recently is the increased accrual rate. During the debate on the Floor of the House last July, the hon. Member for Bournemouth, West, the chairman of the trustees of the pension fund, tabled an amendment proposing that the accrual rate of the pension scheme be increased from one fiftieth to one fortieth, and that the additional cost be borne by the Exchequer. The House voted in favour of the amendment by 215 to 172 votes.

The Government, however, did not accept the proposal that that cost should fall on the Exchequer, so we referred the proposal for an increased pension accrual to the SSRB for advice on how best it should be implemented. The SSRB reported in June and noted MPs' wish to give greater weight to pension benefits within the total remuneration package. It recommended that the one-fortieth accrual should apply to future service only, and that MPs' contributions should increase immediately from 6 to 9 per cent. of pay.

The SSRB also recommended that the balance of the cost of the improvement—some 2.1 per cent. of pay—should be met initially by the Exchequer, but with the proviso that the SSRB should take that additional Exchequer contribution into account in the next review of MPs' pay in March 2004. That means that the full cost of the improved pension will be borne by MPs.

The hon. Member for Northavon quoted selectively from various SSRB reports and correspondence. Even from the debate last July, it seemed that he liked to quote the SSRB only when it agreed with him. In a response to the hon. Member for North Cornwall (Mr. Tyler) about MPs' pay, he certainly gave the impression that he did not agree with the SSRB being involved with their pay and conditions, yet he is perfectly happy to quote it when he thinks that it supports his argument. The hon. Member for Northavon quoted the SSRB's letter to my right hon. Friend the Leader of the House. In fact, the SSRB said that

    ''there is little evidence of improvements . . . except where employees . . . are bearing all or most of the costs.''

That is exactly what we are proposing today.

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The hon. Gentleman also asked a number of specific questions. I am sure that some of the detailed ones will be covered by the chairman of the fund, whose expertise in these matters is greater than mine, but I shall try to address the questions that were put directly to me. The hon. Member for Northavon asked whether the answer that the Leader of the House gave to his written question yesterday was accurate. It is as accurate as it can be, in that it is an estimate, as all these things are, by the Government Actuary.

The hon. Gentleman asked whether the fact that the SSRB would be considering the increased accrual rate when it came to calculate MPs' pensions meant that, in practice, the money that taxpayers or the Exchequer contributed over the next two years would be clawed back. That is certainly the Government's expectation. We have made it clear at every stage that the change should not be funded by taxpayers.

The hon. Gentleman asked whether the House could ultimately ignore the SSRB's recommendations. The House is free to do what it likes; I am speaking today on behalf of the Government, not the House. However, I suggest that, when hon. Members come to discuss the SSRB's next recommendations in 2004, the hon. Gentleman remind us of how we came to make a decision today, and of what the Government and the SSRB have said. The Government do not control what the House does, but we cannot completely disregard it.

The hon. Gentleman asked whether everyone would have to pay, through future salary reductions, for the increase in the accrual rate. That is a good question and one of the first questions that I asked. The simple answer is that it will be up to the SSRB. If the SSRB can find a way of ensuring that hon. Members who do not benefit from the increase in the accrual rate do not suffer a reduction in salary, I am sure that it will. However, the hon. Member for Northavon is right that it is perfectly possible that an hon. Member who does not join the higher accrual rate will still be expected to help to fund it through the impact that any future SSRB decision has on their salary.

Mr. Gardiner: My hon. Friend the Minister has responded to that point properly. Does he also agree that the hon. Gentleman speaking for the Liberal Democrats—[Hon Members: ''No.''] I am sorry; he made it clear that he was speaking in a personal capacity from the Liberal Democrat Benches. He also mentioned a reduction of 2.1 per cent. in the salary that MPs would otherwise have been awarded, but that is incorrect because the 2.1 per cent. relates to the cost to the Exchequer over a two-year period, whereas the salary would be prospective over a much longer period.

The Chairman: Order. Interventions should be short.

Mr. Bradshaw: What matters is that the SSRB is clear about taking into account the overall costs from when the increased accrual rate is implemented. That will apply when it comes to settle with future MPs or make recommendations on future salary increases.

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The statutory instrument before the Committee implements the SSRB recommendations on increasing the contribution and accrual rates and other recommendations from the SSRB's report of March 2001—recommendation 1 on death-in-service, recommendation 3 on recognising service in other UK parliamentary assemblies, recommendation 5 that all dependent children should be treated equally, and recommendation 7 that former MPs who become office holders in the House of Lords should not have their MPs' pensions abated.

The instrument provides for Members to pay contributions of 9 per cent. rather than 6 per cent. of salary from 15 July 2002. Members will have three options. First, they can increase contributions and accrual rates from 15 July 2002, the date the statutory instrument was laid, which is the default option. Alternatively, they can opt to backdate their higher contributions and higher pension accrual rate to 5 July 2001, the date of the vote. Thirdly,they can opt to continue paying 6 per cent. and stay within the current one-fiftieth pension accrual rate. The hon. Member for Northavon asked whether those who decided against paying a higher rate could change their minds, and the simple answer is no.

Mr. Webb: To clarify the question I asked, can those who opt to stay on the 6 per cent. rate do so indefinitely? Will they have a preserved right for ever?

Mr. Bradshaw: There is no suggestion that anything other than that would apply. We have been quite clear about that.

Once taken, Members cannot change their decision and it will remain in force for the entire time that they stay in the scheme. Members entering the House after future elections will be able to opt, on joining the scheme, for 6 per cent. contributions and the one-fiftieth accrual, if they wish. The same provisions apply to former Members who left the House before 15 July 2002, but who are re-elected in future.

I hope that the Committee will welcome this approach, which is designed to address the concerns expressed about adequate pension provision in last year's vote but—contrary to popular misconception—not at the expense of the taxpayer.

11.8 am

Mr. John Butterfill (Bournemouth, West): May I say first what a pleasure it is to serve under your chairmanship, Mr. Cummings?

If I believed that the taxpayer were to suffer a considerable loss as a result of this morning's vote I would not support the regulations. I differ from the hon. Member for Northavon because I do not believe that that will happen. Much misrepresentation on this matter can be seen in the media. It has been suggested that MPs' pensions will increase by 25 per cent., but nothing could be further from the truth. Many among the general public believe that after this morning's vote, our pensions will suddenly increase by a quarter. In fact, as of tomorrow and assuming that the regulations are passed, Members' pension rights will be exactly the same as they are today. All that will

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happen is that the length of time required for Members to serve in order to achieve the full two-thirds pension will be reduced for new Members—many, presumably, after the next general election—from 33 years to 27. For existing Members, only modest changes will apply and for those who have already qualified or bought extra years, no change at all, which is why we require an opt-out. Members likely to complete the qualifying period of service during the life of this Parliament would not benefit from voting for the regulations and are likely to opt out.

I have served for nearly 20 years in the House. The effect on me will be that I will have to serve approximately 31 years rather than 33 to get the full pension. Indeed, the impact of the change will be less on Members who have been in the House the longest. I have calculated that the impact on me is about 6 per cent. in return for a 50 per cent. increase in my contributions. I do not have any great selfish interest particularly because, as I will try to show, the cost is likely to fall entirely on Members rather than the taxpayer.

This is not a case of Members rewarding themselves at the taxpayer's expense. It is clear from the SSRB's recommendation that it expects the total cost to fall eventually on Members, and that it will claw back any costs. However, there is a misunderstanding, and I might be able to help the hon. Member for Northavon. It is not like the pay-as-you-go schemes that operate in many parts of the public sector, but a fully funded scheme. The fund has been built up over many years, substantially by Members' as well as the Exchequer's contributions. If we agree to the 9 per cent. recommendation, Members will contribute more than the Exchequer. Historically, that is the case too. The hon. Member for Northavon will not remember it, but when I entered the House in 1983, Members' contributions were 9 per cent. of their salary. That level continued until the late 1980s, when it was reduced to 6 per cent. because the scheme was in such a large surplus. The fund had more built up in it than was necessary to provide future pensions. Even today, after the dramatic losses on the stock exchange, the fund stands at about £250 million.

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Prepared 23 July 2002