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Dear Mr Viggers,

Parliamentary pension scheme

One of your constituents has written to ask the current value of the Parliamentary pensions payable to an MP who served continuously from 1954 to 1966 and to one who served continuously from 1954 to 1976. He also asked whether such pensions were preserved until age 60 or 65 or are paid as soon as the beneficiary ceased to be an MP.

Unfortunately, this is not an easy question to answer, but I have done my best to provide an indication of the answer from the records to which I have access.

To take the last part of the question first: someone ceasing to be an MP in 1966 with 12 years' service would not have been eligible to receive his pension until age 65¹. Someone ceasing to be an MP in 1976 with 22 years' service would not have been eligible for his full pension until age 65, but could have taken an actuarially reduced pension at 60². A change was introduced by the Parliamentary Pensions Act 1978 which entitled Members who had reached the age of 62, had served for 25 years and did not intend to stand for Parliament again, to retire at dissolution on full accrued pension. However, this only applied to those retiring after the passing of the 1978 Act³.

Turning to the first part of the question, an occupational pension scheme for MPs was first introduced with effect from 16 October 1964 under the Ministerial Salaries and Members' Pensions Act 1965. All service after that date was reckonable and service immediately prior to that date up to a maximum of 10 years was also reckonable, free of cost to the Member⁴. So the first MP would have had 12 years' reckonable service and the second 22 years.

The 1965 scheme was unusual in that both benefits and contributions were fixed in money terms. The initial amount of pension was at the rate of £60 for each of the first 15 years of

reckonable service and £24 for each year of reckonable service from 16 to 45 years. These rates were increased by one-fifth in April 1971 (to £72 and £28.80)⁵. The Member and the Exchequer both contributed £150 per year to the fund. The Exchequer also bore the cost of crediting back service before 16 October 1964⁶.

So the first MP would have built up entitlement to a pension of £720 (£60 x 12) per annum when he ceased to be an MP in 1966.

Radical changes were made to the scheme by the Parliamentary and Other Pensions Act 1972 which brought the MPs' scheme more into line with contemporary superannuation arrangements. All MPs serving on 1 January 1972 (with the exception of past and present Prime Ministers and the Speaker) became members of the new scheme. MPs contributed at a rate of 5% per annum in respect of service after 1 January 1972. Pension accrued at a standard rate of l/60^th of final salary for each year of reckonable service. Years of reckonable service granted in respect of non-contributory service before 16 October 1964 and contributory service between 16 October 1964 and 31 December 1971 reckoned for benefit in exactly the same way as contributory service after 1972⁷.

The salary of an MP in 1976 was £6,062⁸. However, the Parliamentmy and Other Pension Act 1976 provided that, for pensions purposes, the salary should be £8,000 with effect from 13 June 1975⁹. So the second MP would have built up an entitlement to a pension of £2,933 (l/60^th x £8.000 x 22) per annum when he ceased to be an MP in 1976.

16 Pensions Increase

1. Hitherto pensions awarded to former members of the House of Commons and to their dependants have not come within the scope of the Pensions (Increase) Acts. Following the reconstitution of the pension scheme whereby pension benefits are directly linked to the terminal salary of an individual member, the provisions of the Pensions (Increase) Act 1971 will now be applied by the Pensions Increase (Parliamentary Pensions) Regulations 1972 (S.I. 1972 No. 1298) to the pensions of former Members of the House of Commons, participating office holders and to their dependants from 1 December 1972.

2. For Members and their dependants whose pensions were awarded under the Ministerial Salaries & Members Pensions Act 1965 or under Section 8 of the Parliamentary and Other Pensions Act 1972 (which provides for an alternative calculation of pension by reference to the 1965 Act) the regulations provide for the pensions (including the residual part of a year hitherto non-reckonable) to be treated for pensions increase purposes as having begun on the date from which the 1965 Act became effective (i.e. 16 October 1964), subject to a restriction in the amount of increase payable in each case to ensure that the pension together with increase does not exceed the rate of pension payable to a Member retiring on 31 December 1972 with a similar period of reckonable service.

3. For Members who retired under the Parliamentary and Other Pensions Act 1972 with pensions based partly on salary before 1 January 1972 and partly on salary after that date, that part of pension attributable to pre-1972 salary is deemed for pension purposes to have begun on 16 October 1964; again the increase is restricted in each case to ensure that the pre-1972 pension element together with increase does not exceed the pension payable to a Member retiring on 31 December 1972 with a similar period of reckonab1e service.

The 1971 Act also provided that pensions "began" for the purposes of increases on the last day of service even if the pension could not yet be paid because the beneficiary had not yet reached 65. Section 8(2) said;

A pension shall be deemed for purposes of this Act to begin on the day following the last day of the service in respect of which the pension is payable (whenever the pension accrues or becomes payable), except that.....

This had the effect of revaluing preserved pensions by inflation.

I am afraid I have not had time to go back and check how much each annual Pensions (Increase) Order under the 1971 Act actually increased official pensions, but to give a very rough idea of how much these hypothetical pensions might now be worth, I have increased them both by inflation:

£720 in 1966 would now be worth about £8,471

£2,933 in 1976 would now be worth about £13,523

I hope this will help you to reply to your constituent.

Yours sincerely

Julia Laurie
Business and Transport Section

Peter Viggers,MP