Daily Express – Public sector pension costs must be exposed

by Dr. Ros Altmann

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Now that the truth about MPs’ expenses is out in the open, we can expect meaningful change. Not all MPs fiddled their expense claims, but there is another area of spending, covering every single MP, that requires proper exposure.

I am referring to their pension arrangements.

While almost every private sector pension fund is in trouble, having been hit by falling markets and interest rates – though there are at last some recent signs of recovery – MPs retain one of the best schemes in the land. In fact they have one of the best pension schemes in the whole world. It is vital that taxpayers are told the truth about the costs of these pensions.

The Government has pretended that taxpayers would not have to pay up for massive improvements in MPs pension arrangements. In 2002 – apparently against the advice of the Senior Salary Review Board which oversees their pay – MPs voted themselves an enhanced pension deal. Then, as now, stock markets had collapsed and private sector schemes were struggling, but our politicians changed the rules to make their own pensions far more generous.

Ministers assured us at the time that any extra costs would be ‘clawed back’ so there would be no additional cost to taxpayers. Well, surprise, surprise – that isn’t how it has turned out.

Although MPs raised their own pension contributions from 6% to 9% of salary, this was not enough to cover their pension improvements, saddling taxpayers with more than £2m additional costs each year. Our contributions to MP pensions increased from £9.8m in 2003, to £12m in 2008.

It is time MPs were honest about their amazingly generous deals.

Consider an MP who entered Parliament in 1997 and is voted out in 2010. Those 13 years of contributions to the MPs pension scheme will mean a pension of over £20,000 a year for life. This would be worth around £700,000 per MP.

Most of us could barely dream of such sums. Pay and pensions for ordinary workers are in jeopardy and many of those coming up to retirement, who contributed for years to private pension schemes, have ended up relying on state handouts and means-testing. The Government is so out of touch on pensions.

Will this be the next wave of public anger against our leaders? They are maintaining their own subsidised, hugely generous pensions, while private sector final salary schemes fall by the wayside. A few weeks ago, the Prime Minister announced a review of MPs pension arrangements – that’s good but will the review be truly independent? I certainly hope so.

What’s more taxpayers probably face an additional £20million bill come the next election. A combination of forced resignations and early retirements over the expenses issue plus electoral defeat means that in all likelihood there will be the biggest turnover of MPs since the Second World War and an expensive round of “golden goodbyes”, also known as “resettlement grants” and “winding-up allowances”, plus the commencement of final salary pension payments.

Yet MPs pensions are not actually the most pressing public sector pension issue.

At least with MPs pensions, there is a fund being building up to help pay for them over time. There are only a few hundred MPs, but there are a few million public sector workers and no money at all has been put away for their pensions. The looming costs of unfunded public sector pensions are being systematically hidden from taxpayers.

Pension liabilities may be long-term, but they are nevertheless real. We are writing enormous blank cheques on behalf of future generations, for these pensions, while the Government hides the true costs.

These costs are staggering. In the next few years, taxpayers will have to find well over £22billion each year to meet the pension commitments for retired public sector workers. To put that sum in perspective, it is the equivalent of building 250 new hospitals or cutting 4p off standard income tax. The Government insists this is fully affordable. But it has never properly budgeted for these pensions at all. Future taxpayers will have to find huge sums, to pay generous pensions to past workers.

Public anger has not yet boiled over because of the complexity of our pensions system. But as the reality is exposed, there will be major problems.

A vast, feather-bedded, public sector pensions aristocracy is building up, with MPs at the top, while most of the rest of us will struggle to survive in retirement. Policymakers – MPs and civil servants – have organised massively generous pensions for themselves, at the expense of ordinary citizens who will be far less fortunate in later life.

This cannot go on. A public backlash, taxpayer revolts and maybe even social unrest are likely if this mounting discrepancy is not addressed.

The more the public understands about what has been going on, the angrier they will be. Just as we cannot ask other taxpayers to pay our capital gains tax for us or fund non-existent mortgages, how can it be right for MPs and civil servants to demand that our children and our children’s children – who will never achieve such pension security – should have to fund pensions that are detached from real world realities?

And this is really important for us all. If MPs are not exposed to normal pension risks and difficulties, how can they understand the problems the rest of us face? Almost everyone, apart from those in charge of pensions policy, faces a pensions crisis. We rely on policymakers to sort it out. Perhaps if our leaders had some vested self-interest in doing so, they would rise to the challenge properly. Transparency on pensions is even more important than transparency on MPs expenses – the costs are enormous and the sooner we get to grips with this the better for all our futures.