UK - The Senior Salaries Review Board (SSRB) has issued a consultation to gather feedback on the future of the Parliamentary Contributory Pension Fund (PCPF), which includes proposals for reducing costs and the possibility of switching to a different pension arrangement.
A review of the PCPF was ordered by prime minister, Gordon Brown, in February after the Government Actuary’s Department (GAD) advised the government its share of the pension benefits costs would exceed the set level of 20% of payroll of scheme members. (See earlier IPE article: UK considers switch to DC for ministerial pensions)
This figure was confirmed at the end of March 2009 when the latest valuation of the fund to 1 April 2008 revealed the estimated current contribution required by the Exchequer was 23.1%, and the difference would need to be met by increased member contributions, reduced costs or a combination of the two. (See earlier IPE article: Longevity drives up MP pension costs)
In its consultation, the SSRB outline 14 possible methods for reducing costs, such as adjusting:
The accrual rate - currently 1/40th for MPs contributing 10% and 1/50th for those paying 6%; The normal pension age, which is currently 65; The value of death in service lump sum; The ‘five year guarantee’ - this allows survivors of pensioners who die within five years of retiring to receive the full pension until the end of the five year period, and Commutation factors when converting pension into a lump sum
The SSRB suggested one or more of the measures could help achieve the necessary cost reductions. However, it is also seeking opinions on a more “fundamental change” to the scheme by ending the final salary basis and switching to either a defined benefit (DB) career average, a DB cash balance arrangement or a defined contribution (DC) scheme.
Although the closure of the final salary scheme would limit the government’s cost exposure, the SSRB highlighted a number of transitional issues with this option, including when to introduce the new scheme and questioned whethe it should be immediately or after the next general election, so that potential new MPs know the terms and conditions of the job.
It also questioned whether the switch should apply only to new entrants or to future service, while another potential solution would be to enrol MPs into an existing public sector scheme, although this would require appropriate governance arrangements to minimise the impact on non-MP members.
The SSRB meanwhile also said if the PCPF were discontinued it would require decisions on how to run-down the scheme, perhaps through a buy-out to an insurer or by transferring assets and liabilities to the Exchequer.
Bill Cockburn, chairman of the SSRB, said: “The government have asked us to look at the issue of parliamentary pensions and report back to them with recommendations for arrangements which are sustainable, appropriate and fair to both the tax-payer and to MPs. We come to this consultation with a completely open mind. This is an opportunity for an informed, evidence-based discussion of all the options.”
The closing date for consultation responses is 31 July 2009 and it is expected the SSRB will present its report on the results of the review to the Prime Minister by the end of the year.
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