Parliamentary Contributory Pension Fund

Brian H. Donohoe Excerpts

Monday 17th October 2011 Commons Chamber

[Sir George Young]

It would be quite wrong to say that, in principle, our pay should be determined by IPSA but to try, by the back door, to circumscribe that decision by voting down the money it had determined should be paid as our salaries. That would not be an independent determination of our salaries.

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

rose—

[Sir George Young]

I will give way to the chairman of the trustees.

[Mr Donohoe]

May I ask why the motion does exactly what the right hon. Gentleman is saying?

[Sir George Young]

I am not sure that I follow the hon. Gentleman. The motion transfers responsibility for determining MPs’ pensions to IPSA and delivers a commitment made in the Parliamentary Standards Act and the CRAG Act, which I believe were passed without dissent in the previous Parliament.

[Mr Donohoe]

The second part of the motion does the exact opposite. The Leader of the House is trying to suggest that the independent IPSA should take on board what he proposes in the motion, which is that the contributions made by Members of Parliament should increase in line with those of people in the public sector.

[Sir George Young]

I am grateful to the hon. Gentleman for clarifying his point. If he looks at the legislation, he will see that he and the House are statutory consultees for IPSA: if it wishes to make any changes to the scheme, it is obliged to consult the trustees, the Senior Salaries Review Body and anyone who might be affected, which includes all of us in this Chamber. We therefore have some locus in the consultation. The second part of the motion expresses a view on behalf of the House, which we are entitled to do under the legislation. It is right that Members make it clear to their constituents that they expect to be treated no differently from others in the public sector in the determination of their pension contributions.

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[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

As the chairman of the pension fund, I have had many meetings with the Leader of the House and with the chairman of IPSA. As a consequence of my concerns and those that other trustees had expressed, I wrote to every Member of Parliament. They should have received the letter on Thursday by e-mail and over the weekend by post. I presume that, as a consequence, much that I would have said does not need to be said, but I can assure all Members and former Members that I and the trustees will take on board any observations and questions that they may have.

I would argue that we are where we are today as a consequence of successive Governments, since time immemorial, interfering with MPs’ conditions of service. That is the whole reason for this debate today and why IPSA was introduced. On that basis, it seems strange that even at this late stage, the Government continue to think they can interfere with our conditions of service by putting motions such as this before the House. I reject their position and do not think it is right.

I believe that, having been given its new responsibility, IPSA should be fully independent. It is proving itself to be so in the discussions that I have with it. It has assured the board of trustees that it will operate free of Government interference on this subject and on conditions of service across the board.

[Bob Russell]

Will the hon. Gentleman clarify precisely what he has been promised and who promised it to him? Is it in writing?

--- Later in debate ---

[Mr Donohoe]

What has been suggested is in the minutes of the board of trustees, and it is open to the hon. Gentleman to ask for a copy of them. He will see the discussions that have taken place.

[Bob Russell]

rose—

[Mr Donohoe]

I do not have time to give way again, because I am conscious of the fact that so many Members want to intervene or make speeches. Rather than reading out the minutes of meetings, if the hon. Gentleman writes to me I will furnish him with that information.

[Mr Redwood]

Will the hon. Gentleman give way?

[Mr Donohoe]

I will give way to the right hon. Gentleman if I get to a point at which I have some leeway, but I have some important things to outline before I take any further interventions.

The trustees of the time had no choice about the move to IPSA, which was agreed by a motion of the House. However, they fought for and won significant concessions within the Bill that made the change. There is absolutely no doubt that the protection of Members’ pensions was at the forefront of their discussion, and I have to praise the staff and advisers of the pension unit and its previous chairman, Sir John Butterfill. They are to be congratulated on the protection that they got for the pensions of Members and retired Members.

The legislation necessary to transfer the Leader of the House’s powers to IPSA was in place before my appointment as chairman of the board of trustees, but as I continue I shall tell the House that the trustees will have important powers that they did not have previously. The transfer of powers was agreed, as all hon. Members will know, in the wake of the expenses scandal, following the recommendations of the Kelly report. One recommendation was that IPSA should have statutory responsibility for setting Members’ pay, which of course includes pensions, and other conditions of service. It is important to understand that that must be done in consultation with the House. IPSA also has the responsibility of oversight for the administration of Members’ pensions.

Therefore, amendments to schedule 6 to the Constitutional Reform and Governance Act 2010 were made to give effect to the decision to transfer powers over pensions. That is what the Act was all about, and that is what it achieves. However, Members who read the Act will find that aspects of it clearly transfer more powers to the board of trustees.

[Mr Redwood]

Will the hon. Gentleman make that clear, because I do not quite understand him? Is he saying that the trustees have the power and the duty either to consent to IPSA proposals or to withhold their consent? If they have that power, how might they use it?

[Mr Donohoe]

The trustees do not have that power. Given IPSA’s independence, which is enshrined in legislation, at the end of the day, it makes the ultimate decision, but it must do so after meaningful consultation with the trustees. Any changes that IPSA wishes to make to the pension fund must be reported to the Speaker and laid before the House. That is the power within the Act.

The trustees at the time were presented with the proposals to amend the 2010 Act. They asked for and got a number of amendments, but they had no power to overturn the Government’s proposals, which were eventually agreed. I can tell the House that the trustees made an exceptional effort and fought extremely hard in that period, and they won numerous and significant protections for Members’ pension benefits. By way of an example, accrued benefits will be fully protected after the transfer. Because the benefits have been built up, they obviously must be protected, but they are not currently protected and they could be interfered with. That is a clear indication of what the trustees were able to implement—that protection will be enshrined in legislation following the transfer. I do not have time to give more examples, but I can give them to hon. Members after the debate if they want me to.

IPSA can make changes to MPs’ future pension benefits and contributions only after formal consultation with the trustees, the majority of whom, following the transfer of the power, which will happen whenever the Leader of the House gets round to signing the order, will be Members of Parliament or former Members of Parliament. That is an enhancement of the trustees’ powers, because there is currently no such requirement.

Currently, there are 10 trustees—eight are Members of Parliament and two are former Members, but when the order is signed, one trustee will be appointed by the board of IPSA and one will come from the Government. The Ministry for the civil service, the head of which is the Prime Minister, will appoint the latter. I do not suppose the Prime Minister wants to become the trustee of the Members’ pension fund, but who knows?

[Mr Bone]

I do not understand why we have suddenly created a post for the Government in the running of Members’ pensions.

[Mr Donohoe]

I will explain. That individual would be responsible only for representing the Ministers’ section of the pension fund. A former Minister would have a different contribution rate. I see the Leader of the House agreeing with me on this. The pension fund administers that at present and will continue to do so, but by virtue of the contribution, it will come from the Department that the person was in or from the civil service. The Government are not going to start playing a part in the Members’ pension fund. I hope that that answers the hon. Gentleman’s question.

There was originally a proposal in the Bill that members of the board of trustees could be removed by IPSA. That has now been forgotten, and the eight members of the board will continue to be appointed by this House and no one else. They will continue to be elected or selected from this place or from among former Members. At our trustees’ meeting on Thursday, we thought it sensible to determine that we would lose two members at this stage so that this whole process could be carried out smoothly. Otherwise, all sorts of complications could have arisen. As a consequence, I would like to put on record my appreciation—and that of the other members of the board—for my hon. Friend the Member for Lewisham West and Penge (Jim Dowd) and the hon. Member for Watford (Richard Harrington), both of whom have now withdrawn as trustees.

The increase in contributions is the main point of any argument on this matter. I have already argued, and I want to reinforce the point, that IPSA must be seen in every respect as independent. I see no reason why the House should indicate that it would like our pension contributions to be treated in the same way as those of other public service workers. IPSA has a statutory duty to act independently of Parliament, and by giving such an indication, the House is putting undue pressure on IPSA. It should not be influencing IPSA in that way. IPSA must undertake its role as laid down in statute, and in no other way.

[Jo Swinson (East Dunbartonshire) (LD)]

Surely it is important, however, for the House to make it clear that MPs should not be treated differently from other public sector workers. In particular, we should try to avoid a repeat of the bizarre situation earlier this year in which we had to take back powers to set our own pay because the Senior Salaries Review Body had recommended a pay rise for MPs in a year when the rest of the public sector faced a pay freeze. Any such pay rise would have been entirely inappropriate.

[Mr Donohoe]

I have to disagree with the hon. Lady, and I will tell her why. If we put things out to independent arbiters such as the Senior Salaries Review Body, and they make recommendations after consultation with all sorts of bodies, I would argue that the Government should not intervene. In that case in particular, we should not have overturned that decision. This is where we have gone wrong so many times in the past. In the great number of years that I have been a Member of Parliament, I have seen this happen time and again, and my research leads me to believe that every Prime Minister since 1945 with the exception of John Major has interfered in the conditions of service of Members of Parliament to the detriment of those conditions.

I feel strongly about this—so strongly that, as the arch-enemy of IPSA, I argue on the basis of what I have seen that it is far better for it to have that independence, which is clearly documented in legislation, than to have this constant interference in the conditions of service of Members of Parliament. There has not been a great understanding by the Government of some of the elements of the arguments with IPSA.

Given that pay and pensions are linked, it is only sensible for IPSA to take stock not only of all elements of conditions of service, but of the whole question of pensions, which I have always believed to be deferred income for any individual in employment who has a pension fund.

Other considerations relating to IPSA in consultation with trustees include the fact that it has to wait for a valuation. Here, as I say, the Government have not fully understood the position on Members’ pensions or the calculations of where they should go in respect of any increase in contributions, any increase in the age of retirement or any other element affecting those pensions. Clearly, the results of the 2011 valuation of the scheme will shortly be finalised, which I take as a very strong argument for leaving the decision about increases in contributions, if there are to be increases, to IPSA itself. As far as we are concerned, we are in a cost-sharing scheme, as a result of which we must see what the actuary says about any changes to contribution rates before taking a decision that puts us in line with anybody else. As Members will know, there have been increases to pension contributions over a relatively recent period, which I do not think any other members of the public sector have had to face. I suggest that it is important to take that into account, as we are told it will be by IPSA.

I suggest that trustees would also recommend giving further thought to other cost-saving measures in the scheme to make it simpler and to make the benefits clear in a way that everybody understands. From the discussions I have had with Members of Parliament over the last few weeks, I believe that there has been a misunderstanding of many aspects of the scheme. That needs to be taken into account. We also need to consider, if possible, as a means of getting away from increases in contributions, the whole question of increasing the pension or retirement age. It could be part of the answer to some of the problems we face.

Another misunderstanding is the view that this scheme is expensively funded in itself. Schemes like this should be treated differently from unfunded or notionally funded schemes, as assessing changes to member contribution rates should take into account any excess returns generated by funded schemes from the investment strategy. I understand that the London Pension Fund Authority scheme, which is a funded scheme, might not be subject to the general contribution increase that the Government hope to implement. If there are exceptions there, they can be made anywhere else. I am convinced that an awful lot of negotiations are still to take place, and these will bring to the fore some of the elements of the pension fund that are not best understood.

[Mr Anderson]

Is there not a big problem with this whole debate in that we talk about these things as if they are a matter of negotiation, but in fact what we are really talking about is the fact that the Government are imposing a stealth tax on all public sector workers? They are not having negotiations about that, and they are not taking actuarial advice or the effect of the schemes into account. All they are saying is, “There will be an increase on public sector workers’ pensions” as a matter of fact—without allowing negotiations about any scheme to be taken into account.

[Mr Donohoe]

I am not in a position to answer that, as it is for the Leader of the House to do so, although I certainly have some sympathy with what my hon. Friend says.

Some of the closest comparators to Members are senior civil servants. Members of the civil service pension scheme and other schemes such as the scheme for staff of the House of Commons and the House of Lords pay either 3.5% or 1.5% contributions, depending on when they joined the civil service. For that contribution, they either build up a pension at the rate of one sixtieth, or one eightieth plus tax-free cash sum—which equates to one sixty-fourth—with a retirement age of 60, or they build up a pension at the rate of one forty-third with a retirement age of 65. That must be taken into account along with everything else in which we will be involved between now and 2015. It is clear from the discussions that have taken place that consideration must be given to all elements of Members’ contributions.

People may think that I only represent the House in this regard, but I have constituents who are aggrieved by what is happening to their pension funds, and I have every sympathy with them. However, I am here almost as a shop steward—I am not sure that that expression is much liked on the Government Benches—to represent Members in the context of their conditions of service. People describe this as a gold-plated scheme, but although it is a good scheme—indeed, I would argue that it is a brilliant scheme—what is not understood is that only a few Members of Parliament retire from this place with a full pension. Of the 650 serving Members of Parliament, only 35 would leave with one today. Another thing that is not understood is that most Members pay for the rate of one fortieth, which means paying 11.9%. So the scheme cannot really be described as gold-plated.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

Does the hon. Gentleman accept that Members may have already contributed to pension schemes before being elected to the House? They do not generally come here at the age of 21.

[Mr Donohoe]

The regulations restrict the level of pension that can be paid on retirement. The limit is generally two thirds of pay inclusive of pensions that people have built up before becoming Members of Parliament. I think that that answers the hon. Lady’s question. As most MPs have other pension entitlements, the restriction means that a number of them are not paid the pension of one fortieth for each year of their parliamentary service. Worse, a small number of MPs who have not transferred their pensions to the fund end up subsidising the Exchequer by continuing to make contributions for a period for which they will receive no pension. That, too, is not best understood by those who criticise us.

I understand that the legislation allows Members to opt out. If there were an increase in the level of the contribution and if I were 45, I should find things very difficult. Given domestic circumstances, not every Member of Parliament is rich, and those who are not would find it difficult to continue to make their contributions. I understand that that also applies to many members of the fire service, for instance. There will be a drift, and if that gathers pace—as it could—the pension fund will suffer and the Exchequer will eventually have to fund more than it does at present. That must be factored into the equation before any change is made.

Our discussions with IPSA suggest—and Sir Ian Kennedy himself has stated—that it has determined that MPs’ conditions of service will be dealt with fairly, that it will work closely with the trustees once the powers are transferred, and that it would welcome proposals from the trustees on how the relationship should work. I have put that on record because it was said. At the trustee meeting Sir Ian attended, he went on to say that IPSA’s statutory independent role will be maintained. Importantly, that includes independence in respect of public perception. I think the public realise that, and I know the trustees will hold them to that point.

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[Mr Heath]

We would have no power to do so. It is an independent process. If there was any notion that should be done, it would require changes to primary legislation, which would be a matter for the House, not the Government. We can be assured that that is the case.

I wish to put on the record my appreciation of the work that the hon. Member for Central Ayrshire (Mr Donohoe), who chairs the trustees of the parliamentary pension scheme, and his colleagues have done. We are particularly grateful to the hon. Members for Lewisham West and Penge (Jim Dowd) and for Watford (Richard Harrington) for stepping down in order to facilitate the transfer. I know that the hon. Member for Central Ayrshire takes an active interest and has been engaged in discussions throughout the process. I am particularly grateful for his letter, rather than his comments today, in which he stated: “Overall the trustees are of the view that the transfer of powers to IPSA will give the trustees the opportunity to contribute to the review of your pension scheme that we all know is inevitable in a constructive way.” Hear, hear to that. Everyone needs to take account of the caveats he offered, but I do not think that that obstructs the thrust of the motion. My hon. Friend the Member for Colchester (Bob Russell) will not agree with that point, because he does not like IPSA, he does not like all its works and he does not believe that he can trust it. I understand his position, but I invite him to look back at the legislation, which we passed, and accept it.

[Mr Donohoe]

One very important question has not been answered: when will the order be signed transferring to IPSA the powers to undertake the pension scheme?

[Mr Heath]

First, we have to accept the result of any vote this evening, but if the motion goes through the order will be made shortly, and the hon. Gentleman should know that that really does mean shortly; it will be not one of those that lasts several months.

I reconfirm for the hon. Member for Suffolk Coastal (Dr Coffey) that the Government propose to increase contributions to the ministerial scheme, with staged increases being applied from 1 April 2012, and that we will consult on the proposal, as required by the Constitutional Reform and Governance Act. For the avoidance of doubt, I should point out that I do not receive a ministerial salary or pension, so I will not be affected—[Interruption.] As the hon. Member for Wallasey says, I do the job for nothing—for my love of the job. I am glad that that is appreciated—[Interruption.] She does, too.

On that note of happy consensus, I hope the House will agree the motion and pass the matter to the independent body with the very clear indication that, no, we do not expect to be treated differently simply because we are Members of this House and have the opportunity to express our opinions here in the Chamber.