PENSIONS

PARLIAMENTARY CONTRIBUTORY PENSION FUND

Pensions for MPs

The Parliamentary Contributory Pension Fund (PCPF), originally established by statute in 1965, provides pensions for MPs. It is similar in operation to other occupational pension schemes. The PCPF is managed on a day-to-day basis by the House of Commons Pensions Unit on behalf of Trustees appointed by the House.

Membership of the scheme is optional, and MPs may opt out in favour of private arrangements if they wish.  The scheme provides benefits based on years of service and final salary.  Until 15 July 2002, the accrual rate was one-fiftieth of final salary for each year of service in the House.  However, the accrual rate is now one-fortieth (provided members pay a higher contribution rate) for service from 15 July 2002 (although members can opt for the lower accrual rate if they wish).  The maximum pension is two thirds of final salary.  Part of this pension may be commuted in exchange for a lump sum of up to 25% of the capital value of the member's pension benefits.  Pensions are payable at age 65 or on retirement if later.  Once in payment, they are uprated annually in line with the Retail Price Index.

Members currently contribute 10% of salary to the PCPF, or 6% if they choose the one-fiftieth accrual rate. The balance of funding (equivalent to the "employer contribution" in other occupational schemes) comes from the Exchequer.  This is currently 26.8%.
 
Pensions are payable to the surviving spouses, civil partners and nominated partners (who meet the eligibility criteria) of deceased Members - normally at the rate of 5/8ths of the deceased Member's pension. In addition, a children's pension equal to 1/4 is payable if there is one eligible child or 3/8ths if there are two or more eligible children. Where a Member dies in service, a lump sum gratuity of four times the Member's salary may be paid to his or her nominee.
 
The scheme also includes arrangements for early retirement on grounds of ill health; transfers of pension rights into and out of the scheme; and payment of additional voluntary contributions to purchase additional service in the scheme or to fund money purchase benefits from the Parliamentary AVC scheme.
 
Pensions for Ministers and Office holders
 
The PCPF includes supplementary arrangements for Ministers (including Lords Ministers), Chairmen of certain Select Committees and some other paid office holders (not including the Prime Minister, Speaker or Lord Chancellor). The scheme enables Ministers to contribute towards additional pensions (on top of any MP's pension) on the basis of the full Ministerial salary to which they are entitled. Membership of the supplementary arrangements is optional.  Participants currently contribute at a rate of 10% (or 6%) of Ministerial salary received (the Minister's department pays the 10% (or 6%) contribution on the difference, if any, between salary entitlement and salary drawn).  Most of the features of the main scheme also apply to the supplementary arrangements, including the provisions for spouses/partners and dependants.  However, a true final salary model is not appropriate because of the pattern of Ministers' careers and salaries, and their pensions are based on salary throughout their Ministerial service, not on their final Ministerial salary. 
 
Powers of the Leader of the House
 
The Leader of the House has powers under the Parliamentary and Other Pensions Act 1987 to make and amend the regulations governing the PCPF. These powers are exercised by statutory instrument (negative procedure) with the consent of the Minister for the Civil Service, following consultation with the Trustees and representatives of those likely to be affected by any changes (in practice, representatives of the Parliamentary Parties and, where appropriate, the Association of Former Members of Parliament).  At the time of the passage of the 1987 Act, the then Leader of the House agreed that amendments to the PCPF would not be made unless the House of Commons had been given the opportunity to debate the regulations in draft on an amendable motion.
 
The Trustees have since agreed that where proposed changes are purely technical or wholly beneficial that the debate could be omitted, although the Leader would still need to consult with the Trustees etc.  Members who are opposed to any amending regulations retain the right to "pray against" them (i.e. put down a motion opposing the regulation).
 
Trustees of the PCPF
 
The regulations governing the PCPF provide for up to ten Trustees to be appointed and, of these, at least one but not more than two must be pensioner members of the scheme.  (Note: there are transitional provisions to allow Trustees to remain in office after a general election and before replacement Trustees are appointed).  All Trustees are appointed or removed by Order of the House of Commons following nomination via the usual channels.
 
Operation of the PCPF
 
The PCPF, unlike most other public service pension schemes, is funded.  The Trustees are responsible for overseeing the investment of the fund.  They rely on professional investment advisers for advice and professional fund managers for the day-to-day management of the fund's assets.
 
Day-to-day administration of the scheme, the pensioner payroll and associated accounting has been outsourced to SAUL (the Superannuation section of the University of London), having previously been carried out in-house by the Pensions Unit of the House of Commons.
 
Valuation of PCPF
 
The Government Actuary is required by law to do a report on the financial position of the Fund every three years.  The most recent valuation report is as at April 2005 and was published on 30 March 2006.  It recommended that the Exchequer contribution should rise from 24% to 26.8%.  The Government is required by law to follow the Government Actuary's recommendation, and the Exchequer contribution therefore increased to 26.8% with effect from 1 April 2006.  The next valuation will be as at  April 2008 and is due to be published in 2009.
 
SSRB review and forthcoming changes

The provisions of the PCPF have traditionally been set following periodic review by an independent body, the Senior Salaries Review Body (SSRB).  In arriving at its recommendations on pensions, the SSRB has looked at the remuneration package in the round and taken into account the features commonly found in pension schemes provided to those in comparable employment.  It has also taken account of the special circumstances of parliamentary life and the uncertainty of MPs' careers.

The last SSRB report was published in January 2008, and the House of Commons debated it on 24 January 2008.  In line with the SSRB's recommendations, the House resolved that in principle:

• future increases or decreases in pension cost pressures should be shared 50:50 between MPs and the Exchequer;
• the underlying Exchequer contribution to the scheme should be restricted to a maximum of 20% of payroll;
• there should be a review of parliamentary pension provision if the costs rise significantly, such that the 20% cap on the Exchequer contribution is likely to be breached;
• a 1/60th accrual rate in return for a reduced member contribution should be introduced if it can be done in conjunction with changes identified by the Trustees on a cost neutral basis.