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You can find the current article at its original source at http://www.guardian.co.uk/money/blog/2013/jul/16/mps-pay-truth-pension-cuts
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| MPs' pay: the truth about the so-called pension cuts | MPs' pay: the truth about the so-called pension cuts |
| (2 months later) | |
| When the news broke that, on the recommendation of the Independent Parliamentary Standards Authority (IPSA), MPs might get a £7,600 pay rise, it was balanced by talk of a cut in their pensions. But closer reading of the report reveals that if the proposals are adopted, existing MPs could actually see their retirement income rise – at a cost of at least £10m to taxpayers. | When the news broke that, on the recommendation of the Independent Parliamentary Standards Authority (IPSA), MPs might get a £7,600 pay rise, it was balanced by talk of a cut in their pensions. But closer reading of the report reveals that if the proposals are adopted, existing MPs could actually see their retirement income rise – at a cost of at least £10m to taxpayers. |
| IPSA's proposal that MPs' salaries increase to £74,000 grabbed the headlines, but what seems to have slipped under the radar is its suggestion that this pay rise should also immediately increase the pensions earned by MPs to date. IPSA says it has been told this might cost £10m; I think it could easily be closer to £25m. | IPSA's proposal that MPs' salaries increase to £74,000 grabbed the headlines, but what seems to have slipped under the radar is its suggestion that this pay rise should also immediately increase the pensions earned by MPs to date. IPSA says it has been told this might cost £10m; I think it could easily be closer to £25m. |
| IPSA has failed to examine the pension scheme from the perspective of its value to the MP. Instead it has focused on the estimates of the cost of the pension to the taxpayer. The scheme is extremely generous and forms a much bigger element of pay than is usual in this country. This flawed approach to its evaluation has serious consequences for the pay review as a whole. | IPSA has failed to examine the pension scheme from the perspective of its value to the MP. Instead it has focused on the estimates of the cost of the pension to the taxpayer. The scheme is extremely generous and forms a much bigger element of pay than is usual in this country. This flawed approach to its evaluation has serious consequences for the pay review as a whole. |
| I have calculated the value of the pension to an MP based on what he or she would have to spend to achieve the same retirement income from a private scheme: | I have calculated the value of the pension to an MP based on what he or she would have to spend to achieve the same retirement income from a private scheme: |
| • To achieve their current pension on the open market MPs would need to save about £60,000 a year for every year they are in parliament. They actually only contribute £9,100, so they are getting a benefit worth £51,000 a year, or 75% of pay. Contrast this to IPSA's view of the value of the pension: it says it costs the taxpayer 20.4% of MPs' pay or £14,000 a year. | • To achieve their current pension on the open market MPs would need to save about £60,000 a year for every year they are in parliament. They actually only contribute £9,100, so they are getting a benefit worth £51,000 a year, or 75% of pay. Contrast this to IPSA's view of the value of the pension: it says it costs the taxpayer 20.4% of MPs' pay or £14,000 a year. |
| • After the pay rise an MP with 15 years of service will get an extra £2,850 a year in retirement. On the open market this would need a pension fund of £100,000 to provide. Across 600 MPs this translates to about £60m of value. | • After the pay rise an MP with 15 years of service will get an extra £2,850 a year in retirement. On the open market this would need a pension fund of £100,000 to provide. Across 600 MPs this translates to about £60m of value. |
| It is going to be very difficult to bridge the gap between what pensions might cost the taxpayer and what they are worth to MPs because the amounts are so great. But it seems pretty clear that existing MPs are not facing a pension cut. | It is going to be very difficult to bridge the gap between what pensions might cost the taxpayer and what they are worth to MPs because the amounts are so great. But it seems pretty clear that existing MPs are not facing a pension cut. |
| IPSA said its pay review would be guided by five principles: it would make MPs' pay modern, transparent, fair, sustainable, and lastly treat them as professionals. But it has failed to apply its own principles to their pensions. | IPSA said its pay review would be guided by five principles: it would make MPs' pay modern, transparent, fair, sustainable, and lastly treat them as professionals. But it has failed to apply its own principles to their pensions. |
| If it wanted to be modern it could move towards paying a percentage of pay as a pension contribution each year into each MPs' fund, rather than offering a guaranteed pay out. This would aid transparency – the current pension scheme's formulae and potential costs are so complex that even the pay review body can't show it has considered them properly. | If it wanted to be modern it could move towards paying a percentage of pay as a pension contribution each year into each MPs' fund, rather than offering a guaranteed pay out. This would aid transparency – the current pension scheme's formulae and potential costs are so complex that even the pay review body can't show it has considered them properly. |
| The existing scheme requires regular reviews, which show the cost of the pension regularly rising. The scheme had a deficit of £55m at its last formal review in April 2011 – increasing that by more than £10m doesn't feel particularly sustainable. The cost estimates of the scheme to the taxpayer are continually shown to be too low. | The existing scheme requires regular reviews, which show the cost of the pension regularly rising. The scheme had a deficit of £55m at its last formal review in April 2011 – increasing that by more than £10m doesn't feel particularly sustainable. The cost estimates of the scheme to the taxpayer are continually shown to be too low. |
| It is hard to be fair when you have a complex benefit whose value or cost is so difficult to predict. Any change to the pension rules could be considered unfair to the recipient, but other public service staff have seen their pension scheme changed. The proposed changes to MPs' pensions are unfair in that they give them a significant immediate rise in their pension which no other public sector group of employees has received. | It is hard to be fair when you have a complex benefit whose value or cost is so difficult to predict. Any change to the pension rules could be considered unfair to the recipient, but other public service staff have seen their pension scheme changed. The proposed changes to MPs' pensions are unfair in that they give them a significant immediate rise in their pension which no other public sector group of employees has received. |
| In failing to examine pensions properly, IPSA cannot claim to have achieved its goals of settling the issue of MPs' rewards. In leaving behind a complex, opaque pension system which hides the true value of very generous benefits, IPSA leaves behind a ticking timebomb that will explode at a later date when the true cost of MPs' pensions become obvious. | In failing to examine pensions properly, IPSA cannot claim to have achieved its goals of settling the issue of MPs' rewards. In leaving behind a complex, opaque pension system which hides the true value of very generous benefits, IPSA leaves behind a ticking timebomb that will explode at a later date when the true cost of MPs' pensions become obvious. |
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