…it’s their pensions, stupid!
As the nation continues to be outraged by MPs’ expenses, we’re missing that the real free ride MPs are getting is their pensions.
Remarkably little comment has been made about the generosity of the MPs’ pension scheme, but then duckhouses and moats make for better copy.
We’re told the annual cost to UK taxpayers of an MP’s pension is £13,000, but the real cost is more like £30,000, according to pensions economist, John Ralfe – who is a regular contributor on the economics of company pensions and reform of pension regulation to the BBC and Financial Times. The £17,000 difference is yet another hidden perk that MPs have managed to keep largely under wraps until now.
An MP has an index linked pension of £30,000 after just 20 years in Parliament. This means an MP can expect roughly £1,500 worth of pension for every year they are an MP, compared to only £1,000 for each year worked by public sector workers earning £60,000.
So will anything be done about MPs’ pensions, once the furore over their expenses dies down?
Possibly, says pensions expert, Dr Ros Altmann – the well known pensions campaigner and twice winner of Professional Pensions Pensions Personality of the Year . After all, David Cameron has said he wants MPs to move to a defined contribution scheme, whereby MPs would receive a pension based on the level of their contributions, investment returns and prevailing annuity rates at the time they retire – just like most of the rest of us.
Dr Altmann says: “If policymakers don’t face the same issues as ordinary people, how can they make coherent and fair pensions policy?”
Meanwhile, the costs associated with public sector pensions continue to soar as increasing longevity has forced a number of the public sector schemes to update their assumptions about how long their employees will live.
The NHS scheme now assumes that today’s employees will live beyond 90 and draw their pension for more than 30 years, costing the taxpayer an extra £12.5bn. Similarly, armed forces officers are expected to live until age 90.
Civil servants, the most feather bedded of the lot, and who contribute nothing to their own pensions (they only have to make contributions for spouses’ pensions), are now expected to spend a third of their life in retirement.
Clearly, a pension scheme which has to pay out for 30 years or more to former employees who have worked for 40 years is unsustainable. To date, reform to public sector pensions has consisted of mere tinkering at the edges, such an increase in the retirement age from 60 to 65 (but only for new recruits) and cost sharing mechanisms which will cap taxpayers’ costs if life expectancy continues to improve.
Given the furore over MPs’ expenses and the parlous state of the public finances, now could be the time root and branch reform begins to be introduced to the public sector in general and MPs’ pensions in particular.
Time will tell…
