CIPD calls time on MPsí final salary pensions

The existing final salary pension scheme for MPs should be scrapped for needlessly taking on pension risks on behalf of the taxpayer and for failing to be an effective tool in recruiting or retaining diverse and talented individuals to the profession. This is the response the Chartered Institute of Personnel and Development (CIPD) gave to the Senior Salaries Review Body consultation on the review of MPsí pensions.

Instead, Charles Cotton, Reward Adviser at the CIPD calls for the parliamentary contributory pension fund to be replaced by a flexible benefit scheme. Under this arrangement, MPs would receive a flexible benefit account (fixed as a percentage of their salary) that they could then use to contribute to a personal pension, purchase other benefits or take the amount as cash and invest it in other financial products. He also recommends that this approach be adopted by the Scottish Parliament and the Assemblies in Wales and Northern Ireland.

Charles Cotton comments:

ìThe CIPD believes that such an approach can help support the recruitment and retention of individuals from a wider talent pool, by offering choice and putting pensions at the heart of a total reward strategy. This will help create a parliament that reflects the society it purports to represent. Such an approach would also lead to more transparency over how, and how much, parliamentarians are being remunerated, so taxpayers would know the total pay costs of their MPs.

ìIf the final salary scheme is to be retained, however, then it should be made more affordable by increasing MPs contribution, reducing the accrual rate, capping the pensionable salary, removing the option to buy added years, removing the option to transfer in benefits accrued in another pension, increasing the normal retirement age and reducing the pension for early retirement. These changes are all that many firms with defined benefit schemes have been forced to adopt over the past decade – there is no reason why it should not apply to MPs too.

In addition, to deal with the problem of MPs in marginal seats subsidising MPs in safe seats, the CIPD believes that this could be dealt by linking the individualís level of contribution to their length of service, possibly in five-year bands.