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Parliamentary Pensions

Volume 485: debated on Wednesday 17 December 2008

Motion made and Question proposed,

That this House endorses a cost-neutral package of changes to the Parliamentary pension scheme consisting of

(1) the introduction of a new option for members of the scheme to pay a member contribution rate of 5.5 per cent. of salary for a pension building up at an accrual rate of 1/60th of final salary for each year of service, as an alternative to the existing accrual rate options; and

(2) changes to the ill-health retirement provisions, as proposed by the Trustees, including two different levels of benefit depending on the degree of a scheme member’s incapacity, and the periodic review of ill-health pensions.—(Ms Diana R. Johnson.)

I will be relatively brief. These two changes to the rules of our parliamentary contributory pension scheme go some way towards righting the wrongs that have occurred in the past, will be beneficially applied for Members overall, and will in some cases help to prevent what may have been abuse in the past.

The first change relates to retained benefits. As you will be aware, Mr. Deputy Speaker, retained benefits are the restrictions that apply to members of our scheme who have been members of another scheme, particularly a better paid one than a parliamentary scheme. Members who have retained benefits will often reach the ceiling of the amount that they can earn through our scheme well before they are due to retire.

The Government recognised that that was unnecessary in modern conditions in the Finance Act 2004, which took away the compulsion for scheme sponsors to operate a retained benefit scheme. The problem is that if scheme sponsors—including ours, the Treasury—were to accept that, there would be a considerable increase in their costs. The Government, in line with many private sector scheme sponsors, have said that that would not be an acceptable increase to the burden on the scheme. [Interruption.] It would help me enormously if hon. Gentlemen would not have a conference in the Chamber while I am speaking. They could perhaps have it elsewhere, or be a bit quieter. It is quite difficult to put across a fairly complex point that is not always terribly well understood in the House.

What is proposed in the motion, which has been accepted by the Government, is an arrangement whereby those who are affected by retained benefits can remain members of the scheme, and may continue to contribute, in a way that is much fairer. At the moment, quite a number of Members are contributing at a level that means that they will not see the benefit of the money that they are putting in; they are spending their money for nothing. That is clearly an unacceptable situation.

I have a simple question for the hon. Gentleman. He said that the proposal, which I accept and support, has been accepted by the Government. Surely the reality is that it is not a Government matter, but a House matter? The Government’s view is of course of interest, but in the end it should not persuade anybody either way, should it?

I am grateful for that intervention, but of course the reality is that if the House were to put forward a motion that imposed an increased burden on the scheme sponsor, which is the Government, the Government would be perfectly entitled to move a motion against it, and then we would not have the money to implement the measures. We therefore have to move by consent on these matters. In present circumstances, it would not be appropriate for the Government to accept an amendment that would increase substantially the cost to the taxpayers; they are bearing rather a lot at the moment, and it would look rather greedy if we were to try to insist on such an increase. We are trying to find a mechanism that does not impose a huge additional burden on the Government, but that nevertheless rights a serious wrong affecting Members of the House, particularly those who saved significantly for pensions before they became Members.

The proposal will allow Members who are affected by retained benefits to change the basis of their membership of the scheme; they may go on to a new level, and contribute towards a sixtieths scheme. The present two alternatives are a fortieths or a fiftieths scheme. The sixtieths scheme will not be as beneficial, because in any given year they will not accrue as much money as they would at fortieths or fiftieths. However, it will mean that they can continue to remain members and contribute to the scheme, because at sixtieths, retained benefits do not apply under present law. They can contribute at one sixtieth without limit.

That means that those Members would not be expected to pay as much for their special scheme as those who are on a one fortieth scheme, who currently pay 10 per cent., or those who are on a one fiftieth scheme, who pay 6 per cent. It is proposed in the motion that they should pay at 5.5 per cent. rather than 6 per cent. of their salaries, and they can do that without prejudicing their rights under the retained benefits regime and without prejudicing their right to remain in the scheme for as long as they remain in the House.

If Members came out of the scheme because of the problem with retained benefits, it would mean that they would no longer have the benefit of a death in service grant to their partner or spouse. That, again, is pretty unfair on Members. The proposal gets over those problems. It does not totally solve them, but it creates no cost to the scheme sponsor. Those who are at present trapped in an extremely unattractive situation can escape from that.

Members will have to make a selection. All those coming in new at the next general election will have to decide whether they want to be on the one sixtieth scheme, the one fiftieth scheme or the one fortieth scheme, and they will contribute appropriately. Following the making of the order, it will be possible for those who are at present on the one fiftieth or the one fortieth scheme to come out of that and to move to the new scheme.

The Government’s proposal is that that should be a once-and-for-all decision. I am not sure whether that is necessary, and I hope they may think again about that. Members’ circumstances change over time. People are often in the House for many years and they may wish to change from one scheme to another. We—the trustees—have asked the Government Actuary whether there would be any significant cost if Members could make the selection after every general election. The Government Actuary says that the cost would be insignificant.

We have also consulted the staff of the House in the pensions unit as to whether that would involve any significant cost or problem for them, and they confirmed to me that it would not. I am therefore not sure why we cannot allow Members to make the selection after every general election. Be that as it may, I strongly recommend that right hon. and hon. Members approve the motion today, because it is very much for the benefit of Members as a whole and will right a fairly severe injustice which has applied up to now.

The second part of the motion relates to ill-health retirement. The trustees have found that the present scheme is too inflexible. Somebody who becomes very seriously ill or disabled and is no longer able to carry on serving as a Member of Parliament or, probably, to take up any particularly remunerative employment must prove that to us as trustees, and must get a doctor and sometimes a specialist to confirm that that is the case. We, the trustees, have a consultant medical practitioner who would assess that on an independent basis and advise the trustees.

These are difficult decisions to make, because there is often quite a fine line between not being able to do things and being able to do them, but with some difficulty. We have Members in the House who are blind, who are in wheelchairs, who have all sorts of afflictions, yet manage to carry on a very successful parliamentary career. Therefore, no one of those conditions would be enough. The condition has to be permanent, ongoing and unlikely ever to get any better before we decide that we will grant that early retirement. It is a generous scheme, similar to most others outside the House, but it means that even quite a young Member could retire on ill-health grounds and be paid the full pension that he or she would have received if they had stayed here until they were 65.

Can the hon. Gentleman give any indication of the number of Members who have applied—in the past 10 years, say—to be compensated under the provision that he has just described?

The past 10 years is about the whole time in which I have been a trustee. I would have thought that the number was about 30 or 35—something of that order. Not all such applications have been approved, but some have.

The difficulty is that medical situations are often a moving target. There have been radical improvements in medical science, so conditions that were impossible to treat a few years ago can now respond very well to treatment. Furthermore, we do not know what the position will be in another five or 10 years. We have to make a decision based on a snapshot in time.

The situation means that, when we are not happy with the position of a Member, we have to turn them down, even though they might have quite concerning conditions. Again, we are not particularly happy with that. We now propose a two-tier ill-health retirement scheme, which is common outside this place in the private sector. At the moment, there is nothing that we can do to assist somebody who is suffering considerably but not so badly that they cannot do anything, or somebody who has a condition that our medical advisers tell us could be overcome with treatment, after which they could carry on working. We are therefore proposing a two-tier arrangement.

One of the tiers is clear: if we are absolutely satisfied about the degree of a Member’s disability and all our and their medical advisers agree, then we will give that Member their full lifetime pension, starting immediately. If Members have a disability of a lower order—not so severe as to qualify them for the full lifetime pension—the new scheme will say that they can retire and take their pension straight away without penalty, but they will get as pension only what their contributions to date will earn. So there is an advantage to them, because they will get the money earlier without any penalty, but the quantum will be only what can be bought with what they and the scheme sponsor have paid in to date. We think that idea much fairer; it enables those who are ill but who do not fully qualify to retire on a reasonable pension and get it early, and it does not prevent those who are much more severely affected from a health point of view from retiring immediately with a full pension.

The only other part of the proposal is that we would reserve the right to review people’s conditions, either up or down. If we find that somebody to whom we have given a full pension has suddenly fully recovered, is capable of doing absolutely everything and is earning a fortune doing some other job, we might say, “Well, hang on—perhaps the state is being a bit too generous here.” The recoveries that some people make can be remarkable, as we have seen in all sorts of instances. The proposal enables us to move people up or down the scale if the appropriate evidence is available. We believe that to be the right way to proceed, and I recommend the motion to the House.

Both of the proposals seem eminently sensible. I am grateful to the chairman and his colleagues, the trustees, for considering these important matters. These things need careful deliberation, as they would for anyone else planning for their retirement. My intervention was not to suggest that if extra money were asked for from the Treasury, there was not a Government interest. My understanding of the package is that it would reduce the Treasury’s liability, but perhaps the Deputy Leader of the House could confirm that in a second.

I have two brief points, one of which relates to the first motion, which seems eminently sensible because it gives greater flexibility. That is something we would wish for others outside this place, so we are not asking for anything special. That flexibility means we can take less, or more, from our salary. We will have three choices as to how much is deducted and three choices on the length of time over which we can contribute. The proposal and that flexibility are both eminently sensible. I support what the hon. Member for Bournemouth, West (Sir John Butterfill) said because people should be able to vary the arrangement at the beginning of each Parliament. That seems an appropriate response for the reasons that he gave: people’s circumstances change and they might want to contribute more quickly to reach the maximum of the pension.

I apologise if the hon. Gentleman said this, but I want to repeat it because I think it is important. I understand that we are one of the only groups of people who are limited to a pension with a two-thirds maximum in relation to our finishing salary. That does not apply across the work force in general, but because we are governed by a special arrangement in statute, we are kept to it. The public need to know that.

That is not totally correct. If Members reach the maximum level before they are 65, they can no longer continue contributing until they are 65. Once they are 65, they can resume contributions.

I have not quite addressed post-65 circumstances yet, but I understand the hon. Gentleman’s point. People who retire at the conventional retirement age would be able to contribute to a pension that would only be up to two thirds of their final salary, but he says that if people continue working beyond that, they could pick that process up again.

My second point is that the hon. Gentleman made the extremely good point that there must be a system that allows flexibility about the amount of money people are given if they retire on ill-health grounds, which does not treat everyone as if they were the same, because obviously they are not the same. One given lump sum or settlement would be clearly inappropriate in the different circumstances that may exist. As the hon. Gentleman mentioned, we need the flexibility to conduct a review if a person’s health gets much worse, or if they miraculously get much better, either by virtue of science of by some other means. The public would not expect anything else.

I hope that the House will support these eminently sensible proposals.

Earlier this year, the House debated the report of the Review Body on Senior Salaries regarding parliamentary pay, pensions and allowances. I am sure that many Members will remember that debate, although most of the speeches and comments related to the more newsworthy items of pay and allowances, rather than parliamentary pensions.

Despite that, one of the motions passed at the end of the debate was a recommendation from the report—namely, that members of the pensions fund with retained benefits should be allowed to opt for a one-sixtieth accrual rate, in return for paying reduced contributions, provided that off-setting savings could be found to make the change cost neutral. Ensuring that any change is cost neutral is important and I am pleased to see that the Government Actuary’s Department feels that the proposals achieve that.

The changes suggested to the pension scheme are right and proper. It is only fair that those who have retained benefits and will therefore receive less compared with other Members, should contribute less and at a different accrual rate. I appreciate that there has been some debate as regards the percentages involved, but the proposals before us provide a sensible halfway measure, ensuring that those who receive less actually pay less, while ensuring that those who do not have retained benefits do not end up picking up the slack.

The ill-health retirement pensions provisions are very much a step in the right direction. We must recognise the concern about the existing structure, whereby the ill-health pension for serving Members does not distinguish as to whether he or she is deemed capable of being able to carry out some other form of employment. Moreover, once a medical assessment has been made, the current procedure does not allow for reviews to determine whether it is appropriate to continue with the payments.

I therefore welcome today’s proposals, which create a two-tier level for serving MPs, which is a structure that is common in the private sector, as well as in other public service schemes. There will be a higher level of payment for those scheme members whom the trustees feel are permanently incapable of doing any form of work and a lower level of payment where it is felt that, although the member is deemed permanently incapable of performing the duties of an MP, he or she can none the less do some other types of work. It is also right that once an assessment has been made, the case and medical history should be subject to review, as felt necessary by the trustees.

The proposals before us are sensible and balanced. They point towards a better and fairer system, and we on the Conservative Benches support them. Finally, may I put on record our huge thanks to my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) and his fellow trustees? They have been trying to resolve the issues for quite a while, and during that period they have put in much time and effort. I thank them not only for sorting out the issues to hand but, more generally, for all the work that they do on our behalf. It is much appreciated.

I, too, pay enormous tribute to the hon. Member for Bournemouth, West (Sir John Butterfill). I am not sure whether the job of looking after pensioners in Parliament automatically goes to a Member of Parliament who represents Bournemouth, because of the concerns of constituents there, but I am sure that the hon. Gentleman has plenty of experience of dealing with his constituents’ pension issues down in Bournemouth. I am also grateful to him because, as a long-established member of the all-party Spain group, I know that he knows the difference between a good bottle of Rioja and a not-so-good bottle of Rioja.

We should also pay tribute to the other trustees and the staff who administer the scheme. Every hon. Member, from across the House, would agree that they receive a personal service from the staff who operate the scheme. Those staff sometimes have to explain matters to hon. Members whose main interest in life has not necessarily been their pension arrangements and whose first level of expertise is not in pensions.

The Government, too, agree that the proposals before us make sense. Those proposals have come from the trustees and are the result of considerable consideration by them over the past couple of years, and they were broadly outlined in principle in the debate on 24 January this year. The new accrual rate in particular makes sense. It is unfair for those who have significant retained benefits not to gain any further benefit, despite the fact that some of them pay in at 6 per cent. or, in a few cases, at 10 per cent.

That applies not just to one part of the House, but to hon. Members from all parts of the House. I am therefore grateful that instead of the current system, whereby, as has been said, either 6 per cent. of salary is paid for an accrual rate of one fiftieth or 10 per cent. is paid for a rate of one fortieth, we will introduce a new scheme, whereby 5.5 per cent. will be paid in for an accrual rate of one sixtieth. That is simply fair.

I want to allow the hon. Gentleman to correct what I said or at least to put the Government’s position. My proposition earlier was that the new scheme would be less expensive to the Treasury—I think that I was correct in saying that it would effectively be cost-neutral—but can the Minister confirm that as he understands it the scheme will certainly not cost the public any more and that the objective of the whole package is to be cost-neutral at most?

I was coming to that. The Government reckon that the new accrual rate will cost something in the region of 0.4 per cent. of future service payments in the scheme, but similarly, the benefit of the changes to the provisions relating to retirement through ill health will be something in the region of 0.4 per cent., so the two elements will balance each other out. That is why we are glad to say that what is being put forward this afternoon is entirely cost-neutral.

As for retirement through ill health, the hon. Member for Bournemouth, West pointed out the concerns that many have raised. First, at the moment, everyone is treated equally in the decisions that the trustees have to make, despite the fact that there may be considerable differences between somebody who is clearly permanently incapable of undertaking any future paid employment and someone who thinks that they may be able to do some work, but not the arduous work of a Member of Parliament. Furthermore, there is a concern that there is no system of review at the moment. As has been pointed out, this is not so much a question of sudden miracles occurring in people’s medical conditions as of the fact that their conditions might go through different phases or cycles, during which it might be possible for them to return to work. As we know, returning to work is one of the best forms of cure for many people. We are aware that it is important for there to be a system of review.

I apologise if my hon. Friend has already covered this point. I do not wish to be accused of hypocrisy, as I will obviously be a beneficiary of the pension scheme. Does he accept that, while it is important for there to be such a pension scheme, questions are bound to be asked about the difference between our scheme and those of the millions of ordinary people who are now being forced out of final salary schemes? There is speculation, to say the least, in the present circumstances about what sort of pension most of our constituents will receive when they reach retirement age.

I very much hope that my hon. Friend will not be retiring for some considerable time. I also hope that he will not have to retire for reasons of ill health; he seems to be a gentleman of exceedingly good health. He has made the important point that many of our constituents look at our parliamentary contributory pension scheme while having concerns about their own pension arrangements. That is why the Government have been keen to ensure that these proposals, in their unity, will not cost the taxpayer a single penny more, and that the package that we are introducing today will be cost-neutral. That point could not be more tellingly made than in the present global economic circumstances, but it also behoves us to look carefully at the way in which we look after ourselves. That is why it is right that there should be a tightening of the provisions for retirement through ill health, as the trustees have proposed.

My hon. Friend the Member for Walsall, North (Mr. Winnick) was quite right to point out that some of our constituents are having difficulties with their pensions, but the House should be aware that, of about 770 Members who left the Commons in the past 10 years, only 34 qualified for the full pension.

My right hon. Friend makes a good point. It is also true that many former Members of Parliament have to rely on the charitable funds that the House provides because, in the past, provision has simply not been adequate. Those who commit themselves to public service through the House are owed a debt of gratitude. We do not want to overstate that, but it is important that we should look at that issue.

On the matter of retirement through ill health, it is important that we should introduce the two tiers that the trustees are calling for. That will mean that those who are permanently incapable of any work—including work in the House of Lords—would get the full pension to which they would be entitled if they were not retiring through ill health and had been able to work until the age of 65. Others, who have only a partial incapacity and who are not permanently incapable of any further work—and who might end up in the House of Lords—would receive a pension only in relation to what they had so far earned by virtue of their contributions and the Treasury contributions, but that would not be actuarially reduced by virtue of the fact that they were retiring early.

It is also important that there should be regular reviews. My hon. Friend the Member for Walsall, North (Mr. Winnick) asked the hon. Member for Bournemouth, West how many people had retired through ill health. I can tell him that the precise figure for the past 11 years is 26, so we are not talking about an enormous number of people. However, there can be a great deal of distress involved not only for the individuals concerned, but for their families. Being a Member of Parliament is an arduous job, not least because of the travel between our constituencies and the House, and if we are to do the job well, we need to throw all our energy into it, as I know all hon. Members seek to do.

Finally, the hon. Member for North Southwark and Bermondsey (Simon Hughes) said that this was not a Government concern. I think that there are only two regards in which it is a Government concern. The first is that, as my hon. Friend the Member for Walsall, North said, the eyes of the nation are on how we make provision for our own pensions, so it behoves us at this particular time to be careful not to incur additional costs to the taxpayer. The taxpayer already makes significant contributions to the parliamentary pensions fund. Secondly, we are presented with a cost-neutral package—as I have already said, a saving of 0.4 per cent. in one direction and an additional cost, we believe, of 0.4 per cent. in the other direction.

Prompted by what the right hon. Member for Islwyn (Mr. Touhig) said, I think I am right in saying—the Deputy Leader of the House may confirm it—that the average length of service for MPs is for less than 10 years, so we are not talking about large numbers of people with huge pensions accrued over many years. It is too easily assumed by people outside that we are here for ever, whereas many MPs are actually here for a short time rather than a long one.

The hon. Gentleman is absolutely right. I do not want to undermine the parliamentary contributory pension fund, or, for that matter, contributory pension funds in any other public service. My right hon. Friend the Member for Islwyn (Mr. Touhig) and I represent remarkably similar seats and many of our constituents will earn considerably less than we earn as MPs. Many of their public sector pensions may be secure, but that does not necessarily mean that they will be very large.

I fully support the current pensions scheme. The Government are keen to ensure that we do not overburden the taxpayer on account of our contributions, but we obviously need to ensure that proper provision is made for all hon. Members so that they do not live in indigency in their old age.

Question put and agreed to.