UK - The Parliamentary Contributory Pension Fund (PCPF) for UK members of parliament (MPs) would have been £5m in surplus instead of £50m (€58.6m) in deficit at the last valuation if the government had made the correct contributions, the chairman of the scheme has claimed.

Figures were disclosed at a debate in the House of Commons yesterday where the government accepted an amendment tabled by Liberal Democrat MPs, to set the cap on the taxpayer's contribution to the scheme at the 2008-09 levels of 26.8% instead of the proposed 28.7%.

However, Sir John Butterfill, chairman of the PCPF trustees, explained there had been a "considerable period during which the Treasury did not contribute the correct amount to the parliamentary scheme", and suggested the £50m deficit at the last actuarial valuation was completely attributable to the government "failing to pay the employer's contribution".

He suggested the reduction was partly attributable to the Government Actuary's Department (GAD), which he said had highlighted to the government the positive performance of stock markets and admitted lower contributions could be tolerated.

Butterfill told MPs: "If, at the previous valuation, the government had been making the correct contributions, the members' scheme would have been about £5m in surplus rather than nearly £50m in deficit. Today, the GAD is saying, 'now we have to take into account longevity.' The impact of that is to reverse the situation. We now need to raise, probably, another £50m or thereabouts. That problem would not be there if we had dealt with it earlier."

He argued the present system of valuing pensions - through a triennial actuarial valuation - is "stark raving bonkers", and instead claimed the actuarial profession should have been taking a long-term view over many years, and establishing the appropriate contribution from the scheme sponsor and scheme members where necessary, over a period of 30 years or more.

The debate focused on a range of interim measures to try and cap the Exchequer contribution to the £367m scheme, following an agreement by Parliament in January to endorse the recommendation of the Senior Salaries Review Board (SSRB) to limit the costs of benefit accrual of the scheme to 20% of MPs payroll.

However, in March 2009 the GAD revealed the contribution from the Exchequer would have to increase from 26.8% - paid in 2008-09 - to 31.6% if no action was taken, so in an effort to cap contributions at 28.7%, the government proposed MP contribution rates to the scheme should increase from:

10% to 11.9% for pension accrual rates of 1/40th of final salary for each year of service, 6% to 7.9% for pension accrual rates of 1/50th, and 5.5% to 5.9% for pension accrual rates of 1/60th.

Steve Webb, Liberal Democrat shadow secretary state for work and pensions, tabled an amendment to the motion requiring the government to "bring forward further proposals which will cap the Exchequer contribution for 2009-10 at its 2008-09 level" of 26.8%.

Barbara Keeley, parliamentary secretary in the Office of the Leader of the House of Commons, also ointed out the cost of the pension scheme was increasing because of longevity costs rather than the reduction of Exchequer contributions between 1989 and 2003 when there was a surplus in the fund.

She warned MPs: "Achieving a freeze in the Exchequer contribution at 2008-09 rates could involve a further increase in member contribution rates, an increase in pension age, some combination of the two, or other measures. There are a great number of possibilities that we could consider."

That said, Keeley added the government expects "more wide-ranging reform in the future", particularly following the conclusion of the SSRB review of pension provision ordered by the prime minister in February. (See earlier IPE articles: Longevity drives up MP pension costs and UK considers switch to DC for ministerial pensions)

She claimed that, in addition to the interim measures proposed, the government had been considering measures to keep rates at the 2008-09 levels, so the opposition amendment "is consistent with that further consideration", and the government is "content to return with further proposals to ensure the Exchequer's contribution this year does not exceed that of last year".

Webb told MPs it was "inappropriate in 2009-10 to ask the taxpayer to make any additional contribution to our pensions in comparison with 2008-09", and called for an independent commission "to review public sector pensions urgently" to ensure they are fair to the taxpayer and public sector workers.

However, commenting on the government's interim measures Butterfill warned: "We face the problem that the government have made a proposal that is neither fish nor fowl. It does not deal with the long-term problem nor correctly anticipate what might come out of the SSRB."

He added: "The motion is a stop-gap that probably need not have been tabled at all. The whole thing could have been left until we received the SSRB report. It is impossible to imagine the House will not accept the SSRB's recommendations about our future pay, so I would have preferred us to have made the whole adjustment at that time, retrospectively if necessary."

Keeley argued the interim cap entails back-dated additional payments so it would have been "unfair to people to wait until later this year", although she confirmed the government would give MPs a chance to agree the options to freeze contributions at 26.8%, and added it will also "tackle the wider ranging reforms resulting from the review undertaken by the SSRB".

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