Reform's attack on public sector pensions doesn't go far enough

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2 days ago

Richard Tice has announced that new employees in the 10 councils now controlled by Reform UK will not be allowed to join the Local Government Pension Scheme (LGPS), and that existing staff already in the LGPS will get lower pay rises to compensate for their generous pensions. This change is all part and parcel of cutting costs for local council taxpayers.
If Mr Tice really does believe in cutting taxpayer costs, then shouldn't all five Reform UK MPs withdraw from the MPs' generous, and expensive, defined benefit (DB) pension scheme?
Each year MPs earn a pension of 1/51th of their salary, increased in line with inflation, with a retirement age from the state pension age, if they are no longer MPs.
After just one five-year Parliamentary term, an MP on the current salary of £93,904 would be entitled to a pension of £9,206 a year in today's money, fully inflation-linked, and with a 3/8 widow/widower pension. Twenty years as an MP means a £36,000 pension – higher if they served as a minister.
The MPs' pension scheme annual report shows the cost of new pension entitlements for 2024 was 28.8 pc of salary, with MPs themselves paying 11.1pc, leaving taxpayers to pay the balance of 17.7pc. This means total pay and pensions for an MP is over £110,000; £93,000 salary and £16,600 pension.
And because the annual cash contribution paid by today's taxpayers is only 10.5pc of salary, a big chunk of the cost is being passed on to future taxpayers.
Nigel Farage is no stranger to controversies over his pension. In 2017, following Brexit, he said he wouldn't be giving up any of his £73,000 MEP pension, so don't expect him rushing to leave the MPs' pension scheme.
Meanwhile, the Chancellor Rachel Reeves – who as an MP for 15 years has a pension of at least £26,000 a year – is trying to push pension schemes to invest more in UK equities and infrastructure.
Unlike other 'unfunded' public sector pension schemes – the NHS, teachers, civil servants and armed forces – which pay pensions from annual taxation, the Parliamentary Contributory Pension Fund holds assets, like private sector schemes. And it seems to be setting a good example on UK investment
At March 2024 it had £866m of assets, with 40pc held in UK equities, much higher than private sector DB schemes or the LGPS, and with another 9pc in UK property. It also has a 10pc target for 'renewable infrastructure' and 'energy infrastructure', which it's close to meeting.
But before the trustees get too smug they should explain what they think they are doing holding 10pc of assets – £90m – in high-risk 'junk bonds' rated BB and below, not just a bit higher than the average, but spectacularly higher.
The trustees should also give taxpayers a full breakdown of the annual fees and costs of running its Byzantine investment mandate, with umpteen managers.
The published figures show £1.2m in investment management costs, just 0.14 pc of assets, impressively low. But astonishingly, this doesn't include the costs for 'pooled investment vehicles' – making up 80pc of assets. The trustees say, with a straight face, that these costs are 'not separately provided'.
Dame Meg Hillier (Labour) and Dame Harriet Baldwin (Conservative), the current and former chairman of the influential Treasury Select Committee are both trustees. Can they use their reputation for asking awkward questions and demanding transparency when grilling reluctant ministers, to get the fund managers to provide the total costs (a multiple of the modest fees quoted)?
In 2013 Dame Harriett argued in her response to a consultation that MPs should move from DB to DC pensions like 'the majority of private sector pension schemes'.
She was right in 2013, and is still right today. The current pension should be stopped, and MPs moved to a DC pension, with taxpayers putting in 10.5pc of salary, the current cash contribution, still much more generous that the average in the private sector.
As well as reducing cost and risk for taxpayers, this would help to kick-start the reform of other public sector pensions, where staff are still earning DB pensions that are more generous than those in private sector ever were.
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