Uncertain present, uncertain future
What does an MP do on leaving parliament? One might think that MPs would have no end of options, board memberships for one, with companies keen to enhance their prestige and influence in the business world. But companies also strive to avoid controversy.
An example of this can be found in Denmark, where, companies tend to prefer “bland” boards, according to deputy speaker Svend Auken. “They don’t like controversy and ministers are men of controversy.”
Auken points out that former prime minister Paul Schlüter had great difficulty finding employment in the business world after he had left parliament.
“It’s not an added qualification to have done time as a minister,” he says. “MPs who want to return to business after three or four years in parliament will find it very difficult to continue their career as if nothing had happened.”
So in a country where around a third of MPs lose their seats at a general election the financial “reward” of a career in parliament is important.
The Danish Parliament, or Folketing, has 179 MPs (Medlen Folketing or MF) including two that represent Greenland and two that represent the Faroe Islands. There is no upper house.
The basic annual salary of an MF in Denmark is E67,772 which is well below the remuneration of their counterparts in the UK, Ireland and Germany, for example. The full pension of E38,630 is paid after 20 years of service and equates to 57 % of the MFs’ basic salary to a MF of E67,772 per year.
The pension scheme is pay-as-you-go and non-contributory. The pension is paid from the age of 60 although an MF is not allowed to draw the pension before he leaves parliament. Entitlement is based on a minimum length of service of one year.
The rate at which the pension accumulates declines the greater the MF’s length of service. For the first nine years of service the pension accumulates at an annual rate of 3.25% of the basic salary. From the tenth year the rate is 2.8%; for years 18 and 19 the annual rate is 1.8% per year and for the twentieth and final year it is 1.75%, making a total of 57%.
Until they reach the age of 65, former MFs with a member's pension are given an additional allowance of 1/20 of E4,802 per year of service up to a maximum of 20 years. There is no lump sum.
So, a former member that had served for 15 years would receive a pension of E31,209 plus an additional allowance of E3,602 between the ages of 60 and 65.
Once the pension is being drawn it is increased in line with inflation. It does not reflect increases in the MFs’ salary that may be implemented after the MF in question has ceased membership of the parliament.
The parliamentary pension is subject to income tax. When the member reaches the age of 67 it is reduced by 9% as is the case with other public employee schemes in Denmark.
The spouse's pension amounts 71% of the members’ pension. Children of deceased MFs also have pension rights under the scheme. There is no death-in-service benefit.
The total cost of the scheme was E3.1m in 2000, E3.3m in 2001, E3.5m in 2002 and E3.8m in 2003. There are 172 former MFs in receipt of a pension as well as 100 spouses of former MFs.
If a former MF also has pension from previous or subsequent ministerial service, civil service employment, or service in local government the total pension cannot exceed the pension of the highest grade of civil servant, for example a permanent secretary, which currently stands at E59,056 annually (E63,857 between the ages of 60 and 65). Any pension arrangements arising from employment in the private sector are not taken into account.
The pension scheme for MFs is laid down by the Danish Election Act and overall responsibility lies with The ‘Presidium’ which consists of the speaker and the four deputy speakers.
It is this body which occasionally reviews the scheme and makes the decision as to which grade of civil servant the MFs’ remuneration should be based on. Such proposals are always subject to a vote in the parliament.
The basic salary of a MF corresponds to the salary of a head of department within the civil service. But the pension schemes differ in one important respect: it takes 37 years for a civil servant to accumulate the maximum pension, almost twice as long as an MF needs.
The reviews are not carried out on a regular basis; the last one took place in 2000. There is no fixed date for the next one; a source in the parliament’s administration department said that it might not take place for another 10 years.
The most important element of the most recent review as far as the pension scheme was concerned was the adjustment of the salary to a higher grade of civil servant resulting in an increase of the annual basic salary of around E11,000.
The pension was the same as the full pension for MFs until the most recent adjustment in 2000 when the MFs’ pensions were increased while ministerial pensions remained unchanged, due to what a source in the parliament described as “political compromise”.
The full annual pension for ministers is E31,859, and while this is less than the full pension for MFs, it accumulates after just eight years’ service. It is not linked in any way to the higher ministerial salary of E124,374. Eligibility requires a minimum of one year’s service.
Any suggestion that the scheme is over generous receives short shrift from deputy speaker Svend Auken. “Shouldn’t someone who has served 24 years and has devoted his life to public service be given a reasonable pension?” he asks.
He adds: “The level of compensation for members of parliament will be an issue every time remuneration is increased. There is some outrage in some of the tabloids but apart from that it’s a non-issue here.”
In other parts of Europe, Germany and the UK for example, where the erosion of pensions is a very hot issue, MFs are bound to come in for scrutiny. “But there is no reform of the pension system taking place in Denmark so people are not worried about MFs’ pensions,” says Auken.
The problem is more to do with the general level of remuneration. “You can earn five or six times more if you go into finance than if you go into politics,” says Auken. “It used to be possible for MFs to continue their old job on the side. That is impossible today: being an MF is a 24-hour job.”
“Now there is a fundamental recruitment problem to get good people to run for parliament. They think about the long hours, the uncertainty of the job and being abused in the press, and then they look at the salary. If you are a brilliant young conservative or liberal you wouldn’t even dream of going into politics.
So what about recruitment to the left of politics? “It could be an issue with the left but few of the people that we would recruit would consider a major career as a barrister,” says Auken.
Auken, a social democrat, ensures us that he is “not being partisan”.
So in the interests of democracy should we increase the MFs’ pension? Auken counsels caution: “In my view MFs should not live their lives differently from the better off middle class families here.”
However, he notes: “But you should be able to survive the whims of a parliamentary career.”
So we have a dilemma. How do we make politics more attractive for those who might otherwise chose the financial rewards of a high-flying career elsewhere without offending public opinion?
By European standards Denmark’s MFs are not particularly well paid. MFs from Germany, the UK and Ireland for example, all receive more. The pension arrangements are not the most generous either. The German system for one is considerably more generous.
However, it should also be pointed out that Danish salaries as a whole are not especially high by European standards, especially when one considers net pay. And while Auken surely has a point when he says that one could earn much more in other high profile professions, we know that this argument also applies to other countries.
But the real problem of parliamentary recruitment remains. As does the uncertainty of the job. Auken concedes that there is need for change: “If remuneration needs to be corrected then it should be corrected upwards,” he says.
So it may well be that an adjustment to remuneration along the lines of the one that took place four years ago cannot wait another ten years.
The question then becomes one of political will.