Page last updated at 11:37 GMT, Tuesday, 15 December 2009

Report on cutting MPs' final salary pension scheme due

Houses of Parliament
MPs have already voted to reduce taxpayer contributions to their pensions

A review of MPs' pensions - which could see them lose their final salary scheme - is to report by the end of the year.

The review, by the Senior Salaries Review Body, was ordered by Prime Minister Gordon Brown after concerns about the growing cost to taxpayers.

Alternatives being looked at to reduce the cost to the Treasury of the current scheme are "defined contribution or money purchase arrangements".

The Conservatives and the Lib Dems both want the final salary scheme closed.

MPs have already backed changes which cut the contribution to their pension from taxpayers by 2.9% or £1.4m a year.


But Commons leader Harriet Harman said any further changes would be put on hold until the review body made its recommendations.

"The government's decision on any further proposals will be taken after the publication of the review," she said in a statement.

Mr Brown ordered the review in February to look at ways of reducing the £12m a year cost to taxpayers of the MPs' pension scheme.

A review proposed in January 2008 was put off by MPs, who voted to delay the inquiry until the cost of pensions hit 20% of their total payroll, which is around £130m.

In June of that year, the Government Actuary Department warned that the 20% limit would be breached, triggering a fundamental review of the entire pension scheme.

Government actuaries later warned that because of a £50.9m deficit in the scheme, taxpayer contributions would have to rise to 31.6% of salary from 1 April 2009.

But in June this year, MPs voted to increase the amount MPs pay into the scheme and to cap taxpayer contributions at the 2008/09 level of 26.8% for 2009/10.

The cost to the Treasury of MPs' pensions has risen from £9.8m in 2003 to £12m last year. Over that period, MPs themselves were asked to contribute an extra £700,000.

MPs' contributions to their pension scheme are set at 11.9% of their salary and the current "accrual rate" - the proportion of salary received for each year of service - is 1/40th.

Currently, MPs with 20 years' service can retire on a pension of £30,000 a year. The average private sector pension is about £25,000.

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