Category Archives: Pensions

Cabinet ministers to get bigger pensions

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Pensions are complex and many find them boring. Consequently few people really understand them.

One person who does understand pensions, or at least should, is Francis Maude, Minister for the Cabinet Office, who was previously Managing Director at Morgan Stanley, and whose responsibilities include ministerial pensions.

On 15th March he put a statement in the House of Commons library describing some changes to ministers’ pensions to come into effect on 1st April. Ministers’ contributions to their pension scheme are to increase by an average of 1.7% of salary, lower than the 1.85% rate applied to MPs, although ministers earn more, and significantly below the 2.4% applied to most public sector higher earners.

Extra pension contributions for ministers are tiered, so that that parliamentary under-secretaries, who are paid £23,698 in addition to their MP’s salary, pay 1% more. Ministers of state, who get £33,003 more than an MP, pay 1.6% more. Cabinet ministers, who receive an extra £68,828 and therefore £134,565 in total, pay 2.4% higher pension contributions.

On the face of it that seems fair, with higher earners paying higher increases as elsewhere in the public sector.

However, what Francis Maude does not spell out in his statement is that, under the rules of the ministerial scheme, cabinet ministers, unlike junior minister and other MPs, will receive bigger pensions in return for their higher contributions.

Because of the Maude changes cabinet ministers will now receive a full one-twentieth of an MP’s salary in pension for each year they serve in cabinet. That is because the ministerial pension scheme provides:

“For each year of service as a Minister, the contributions you paid are compared to the contributions that would have been paid by an MP as a member of the MPs’ Section to give a contribution factor … At retirement, all the contribution factors are added together and multiplied by the basic annual salary applying to an MP during the last 12 months of your service as a Minister, to calculate the pension payable.”

Under the Maude changes the ‘contribution factor’ for a cabinet minister rises from 0.956 to 0.995. Cabinet ministers will pay in just £229 more per year than they would under the 1.85% increase for MPs. Yet in return, because of the Maude changes and even if they just serve for one parliament, cabinet ministers get an extra £314 added to their pension every year throughout their retirement.

Highest paid benefit at expense of lower paid

For the country as a whole the Prime Minister and Chancellor are keen for those with the broadest shoulders to make bigger sacrifices so as to lighten the load for those who are paid less. However, there is a different approach nearer home.

Ministers on average will pay less as a proportion of their salary for pensions than do backbench MPs. Meanwhile, under the Maude changes, junior ministers’ pensions are cut to pay for higher cabinet pensions. Ministers of state lose £75 from their pensions, more if they are long-serving, while pensions for parliamentary under-secretaries are cut by £183. This follow cuts to their salaries in 2010 of 14% and 17% respectively, compared to only 9% for cabinet ministers.