ACA also made a number of recommendations that would cap the annual costs of the Parliamentary scheme in the period running up to a wider major review of public sector pensions.
Its main recommendations are designed to keep the Exchequer costs at 20 per cent or below of payroll, a level which is now being exceeded. It proposes that the MPs scheme should move to a career average structure. Whilst this is unlikely to have a significant impact in the short-term, given the recent trend of increases in MPs pay, it does provide protection if at some future stage the pay levels of MPs are re-aligned. This is needed in the event that there is no wider review of parliamentary or other public sector pensions ahead of such a pay re-alignment. Revaluation to reflect inflation should be capped as in the private sector to up to 2.5 per cent, says ACA.
Aca also says adjustments in the ‘normal retirement age’ should be used as the primary cost containment measure. It says after each triennial valuation the benefits to be accrued for the following 3-years should be referenced to a normal retirement age, enabling the Exchequer contribution to be capped at 20 per cent of payroll.
It also argues that the proposed changes should apply to the future service of all MPs as well as new entrants from the next General Election as it would be divisive and invidious to have different pension arrangements for MPs’ future service. This would also add complexity to the pension arrangement, when simplification needs to be the order of the day across all types of pension arrangements.
ACA chairman Keith Barton says: “These interim proposals represent about the limit of genuine risk sharing currently available, whilst retaining a DB approach, which we continue to favour given the volatility associated with DC and DB’s greater operating efficiency. We have reiterated in our evidence the ACA’s recommendations on how wider risk sharing, requiring changes in current legislation, which presently restricts its application, could be implemented.
Risk sharing reforms could provide additional flexibility in the running of both private and public sector funded schemes, like the Parliamentary scheme.”