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Miscellaneous - Pensions 2

Taxpayers will be contributing an extra £25m over the next three years to make up the shortfall in the pension fund for MPs. As with hundreds of company pension schemes the drop in the stock market has blown a hole in the fund and it needs to be filled up. But instead of the scheme members paying extra, the Treasury is to treble payments to the Parliamentary Pension Scheme from 8% to 24% of MPs salaries to meet the gap. Steve Webb, the Liberal Democrats work and pensions spokesman, said the move "does not look right" at a time when constituents' private pensions are doing so badly. Ben Bradshaw, the Commons deputy leader, said part of the rise in contributions was necessary to meet a deficit in the Parliamentary Pension Scheme of £25m. In 2002 MPs voted themselves an enhanced pension deal, with a rise from one fiftieth to one fortieth of their annual £55,000 salary to be paid per year of service. They argued that the precarious nature of the average Parliamentary career means they deserve a better pension deal.

The move, which is likely to infuriate pensioners' groups unable to rely on large hand-outs from the Exchequer, was blamed by the Government yesterday on the stock market. But it also conceded that the more generous pension package for MPs approved by the Commons last year had contributed to the deficit. Ben Bradshaw, the Deputy Leader of the House of Commons, announced the new arrangements. He said the main reason for the huge increase was the decision to end the contributions holiday enjoyed by the Treasury for the last 13 years and "disappointing investment returns". He added, "The surplus on the scheme has now been exhausted in this way and Exchequer contributions must revert to a level reflecting the long-run costs." The Commons agreed better pension packages last year, although they might be reflected in the next review of MPs' salaries. David Willetts, the shadow Secretary of State for Work and Pensions, said the pension fund had "come down to earth with a bump". He said it was "mirroring the experience" of many schemes which faced higher contributions because of stock market losses and higher taxes on pension funds.

Mr Webb said the MPs pension fund had suffered in the same way as everybody else's fund, with surpluses in the 1990s, followed by a "holiday" or cut in taxpayers' contributions. "What was announced yesterday is over and above that rise, because the fund is now in deficit, extra taxpayers' money is going in - and that is really the part that I, as an individual, object to," he told BBC Radio 4's Today programme. "I think that we as MPs should have no better, no worse position when this sort of thing happens, as our constituents in private sector funds. What's happening to them is that in some cases, workers are having to put more in or are seeing their benefits reduced as well as employers putting more money in. What's happening for us is the whole of the amount of the shortfall is being met by the taxpayer. All I am saying is, at a time when our own constituents' pension funds - particularly in the private sector - are doing very, very badly and Parliament arguably has failed to address that problem urgently enough, it simply doesn't look right for us to expect the taxpayer to meet all of our deficit without us putting anything extra in at all."

Mr Webb said he believed the government was concerned that the MPs "wouldn't wear" being asked to make up the full cost themselves. "I think the same thing has happened again this year," he said. David Willetts, shadow work and pensions secretary, said, "The fund is mirroring the experience of many funded pension schemes, which are seeing increased contributions to make up for the cost of the Chancellor's £5bn a year tax imposed on pension funds in 1997 through the abolition of the dividend tax."

One in seven Britons have made no pension provision while 21% do not know how they will survive financially when they retire, according to new research. Help the Aged said a further 40% of people thought they would have to cut back on a lot of things when they stopped working, although a third still expect to be better off than pensioners are today. Among those who have started paying into a pension, 24% are not confident the measures they have taken will be sufficient, while half of those who have not started saving do not know how they will get by when they stop work.

More alarmingly, a third of people with no retirement savings expect to be better off than ever when they stop work, while 52% do not plan to start a pension in the future. Two-thirds of people said they understood how much they should be saving, but 45% said they didn't understand the current state pension system, and just 11% think the Government will provide them with a decent pension when they retire. The research also found that 70% of people do not trust the Government to provide unbiased information on pensions, while 39% do not trust financial firms and 37% do not trust their employers.

Mervyn Kohler, head of public affairs at Help the Aged, said, "The Government is losing the trust of the public when it comes to pension provision, and is increasingly out of touch. We urge the Government to take on board the urgent task of delivering adequate and sustainable pension policies, and its particular responsibility to educate and inform people of the very real crisis facing them as they get older." It is calling on the Government to set the state pension at a level which is "decent and acceptable" and lifts the majority of pensioners out of means testing.

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