A post-General Election review of public sector pensions is necessary before reforms are considered for MPs' pensions, says the Association of Consulting Actuaries (ACA).

In its evidence presented to the Senior Salaries Review Board's (SSRB) review of Parliamentary pensions, the ACA said it is important for a wider review, looking at how much the taxpayer should pay towards public sector employee pensions in both funded and unfunded arrangements.

One suggestion made by the ACA would see a cap on the annual costs of the Parliamentary scheme in the run-up to a wider review, as it could take time to report and implement changes.

The ACA has made recommendations that would keep the Exchequer costs at 20 per cent or lower of payroll, a figure which has been the catalyst for the Prime Minister to ask for the present review. The ACA said the MP pension scheme should move to a career average structure, providing some future protection as MP pay levels are re-aligned. This, the ACA said, could integrate the current arrangements for Office Holders, and revaluation to reflect inflation would be capped up to 2.5 per cent, as we see in the private sector.

The normal retirement age should be used as the primary cost containment measure, with benefits accrued after each triennial valuation referenced to this, allowing the Exchequer contribution to be capped at 20 per cent of payroll.

Other recommendations would see the 2009 pension tax changes used as an opportunity to offer MPs the option of a cash alternative equivalent to the value of the Exchequer contribution, and that the proposed changes apply to the future service of all MPs as well as new entrants from the next General Election.

"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," commented Keith Barton, ACA chairman. "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."

- Pensions Age August 2009

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