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Members' Salaries, Pensions and Allowances

It will not surprise right hon. and hon. Members that I shall start by speaking principally about the parliamentary contributory pension fund. I want to place on record my thanks to the Prime Minister for sending me an advance copy of the report, although I received it only a week before everybody else. Because I then had to plough through some extremely complex detail about the recommendations on the pension fund and the Watson Wyatt report, it would have been helpful, and I would have been able to make an even better contribution than I am able to make today, if, as I had requested, I had been sent the embargoed copy of the report some weeks before that. That would have allowed me, the staff in the pensions unit and the Government Actuary to put together a more considered response than that which I am able to give. In the future, if I can be trusted with an advance copy, that would make it much easier for us all to have a better debate on the subject. Unfortunately, as I have already said in an intervention, it appears that there are many factual errors in the Watson Wyatt report. Perhaps I should deal with them first, as it is important to put them on the record. In volume 2, on page 76, in paragraph 2.18, the Watson Wyatt report gives its view on how the deficit in the scheme arose. It states that it arose"““as a result of a divergence in the experience of the PCPF since the previous valuation (primarily due to lower investment returns than expected) and changes to the assumptions””—" about future benefits and so on. That is wholly inaccurate and is contradicted by paragraph 2.19 and the graph that accompanies it, which is chart 2.1. The graph shows that successive Governments took contributions holidays between 1989 and 2003. Those holidays were absolutely massive and, in the opinion of the Government Actuary, more than contributed to the current deficit. Indeed, at the time of the Government Actuary's last evaluation, he concluded that had it not been for the contributions holidays, the PCPF would have been £5 million in surplus. The record needs to be corrected on the reasons why the scheme is in deficit. The Government, on behalf of the taxpayer, have been failing to make its correct and recommended contribution to the scheme. Even chart 2.1, it seems to me, contains an inaccuracy. My recollection from when I came to the House in 1983—no doubt you, too, will remember this, Mr. Deputy Speaker—is that we then paid 9 per cent. for a six-year scheme. It might be that the off-blue section of the chart, which is supposed to represent our contributions, is also inaccurate. I have not had the opportunity to check that in detail while I have been speaking. [Interruption.] I hear several hon. Members confirm that that is a fact. Messrs. Watson Wyatt also say, on page 91 of volume 2, that the build-up of benefits above the two-thirds maximum post age 65 contributes significantly to the costs. It appears that no one has told them that in 1989 we abolished Members' right to accumulate post-65, apart from those elected before 1 June 1989. The overwhelming majority of hon. Members, therefore, do not have the right to accumulate past 65, and the remaining few who do will be phased out. However, that has not been taken into account in the calculations. The next error appears in paragraph 2.3 on page 72. The final bullet point of that paragraph states:"““Members can commence receipt of their pension whilst remaining an MP””." That would be great news if it were true, but of course it is wholly untrue. Members cannot draw their pension while remaining an MP, and have never been able to do so. If it were true, the costs of the scheme would be greatly increased, but it is not true. Indeed, in light of the Pensions Act 2004, we had to make some special arrangements for those Members aged 75 and over, of whom there are a handful. The Act meant that they were required to take their tax-free lump sum at the age of 75 and commence drawing their pension, as otherwise they would lose their right to a tax-free lump sum. The special arrangement that had to be made for them was that they would be deemed to be drawing their pension from the age of 75, even though they would not actually receive it. However, they were able to take the lump sum, with the rest being held in escrow, so to speak: even though they were not getting the money, they did get increases in line with inflation as though they were getting it, so that the final pension level was correct when they eventually started to draw it. Again, I am afraid that Messrs. Watson Wyatt are labouring under a number of misapprehensions about elements that greatly affect their assessment of the scheme's cost. Lastly, I invite Members to turn to page 71 of volume 2. Table 2.1 repeats incorrect assumptions by stating that the normal retirement age is 65,"““although members can continue to build up benefits after that age””." Only a few Members can do that, but the assumption is that all can. The table also says that the maximum benefit is two thirds of pensionable salary,"““although accrual can recommence if the member is older than 65””—" another repetition of the same erroneous assumption. That seems to be quite a serious series of errors in the report's assumptions.