Without pensions, MPs could better represent the 75% of Canadians (in the same situation)

Gordon Brown to scrap final salary pensions for MPs
Gold-plated final salary pensions for MPs could be scrapped, under plans put forward by Gordon Brown.

By Andrew Porter and James Kirkup
14 Feb 2009
Telegraph.co.uk

The Prime Minister has called for an investigation into how MPs’ retirements are funded because he fears they are becoming too expensive for the taxpayer.

In recent years hundreds of private-sector final salary schemes have been forced to close, but MPs are still able to retire with large, taxpayer-funded, pension pots.

The move by Mr Brown could eventually allow politicians to propose scrapping all public-sector final salary schemes, currently enjoyed by millions including civil servants, council employees and health workers.

These pensions have proved increasingly controversial as private-sector employees have seen their taxes continue to fund the retirement of those working in the public sector while the value of their own funds has shrunk.

The current total liability of public-sector pensions to the taxpayer is officially estimated at £650 billion, but the Government has been unable to look at reforming the system while MPs still enjoy the same benefits. Last night Mr Brown wrote to Bill Cockburn, the chairman of the Senior Salaries Review Board (SSRB), ordering an investigation of MPs’ pensions. He wants the option of ending final salary schemes examined.

A Number 10 source said: “The Prime Minister is keen to move on this. At a time when people are struggling there is little reason for MPs to still be seen as feathering their own nests. Taxpayers should not have the extra burden of finding the extra money for the people who represent them.”

The review has been triggered because the cost to the taxpayer of contributing to MPs’ pensions has risen above 20 per cent of the Westminster pay bill.

The SSRB, an independent body that advises on pay for civil service chiefs, judges and senior military personnel, will be asked to come up with recommendations for a new pension plan.

At the moment, an MP with 20 years’ service can retire with an income of £30,000 a year. A worker with an average job would have to work for more than 60 years to earn the same pension built up by an MP with just 13 years’ service.

Taxpayers were forced to stump up £12 million last year to maintain the lucrative pensions, compared with £9.8 million in 2003. And yet over the same period the contributions from MPs themselves rose by only £700,000 to £4.3 million.

A further £15 million of public funds was needed to bolster the pension pots when a £103 million “black hole” opened up after MPs were allowed a “contribution holiday” between 1989 and 2003.

The Liberal Democrats claimed last month that the contributions that are paid by the taxpayer amount to 27 per cent of an MP’s £63,291 salary. The average in private-sector final salary schemes is 14 per cent.

Once he steps down, Mr Brown will be entitled to a special pension as a former prime minister that is even more generous than the parliamentary retirement scheme. The pension pots of former prime ministers are around £1.75 million.

However, mindful of the need for restraint, Mr Brown last year gave up his grace-and-favour pension, which would be worth more than £64,000 a year. Tony Blair currently receives such a pension.

Critics are certain to point out that it was Mr Brown’s decision as Chancellor to end tax relief on dividends paid to pension funds that is regarded as the beginning of the end for final salary schemes. It has been estimated that the move has cost private occupational schemes £175 billion.

Three quarters of final salary schemes have closed to new members in recent years. There are 7,800 such schemes in Britain, according to the Pension Protection Fund.

The Prime Minister will face opposition from some MPs who will have to vote on the change, but his desire to halt the generous schemes is likely to be backed by the Opposition.

David Cameron, the Tory leader, will be eager to show that he is in tune with the country at large which believes MPs are too well rewarded through the expenses and allowances systems.