Writing to the Government Actuary last Friday, Brown admitted that the gold-plated pension scheme was becoming unaffordable and called for a review into whether it should be abolished.
Brown said: “The Government Actuary’s department has advised that it anticipates that the cost of accruing benefits is indeed likely to rise above 20 per cent of payroll. This effectively triggers the need for the review.”
The probe will look into options such as increasing MPs’ retirement age, changing provisions for retirement on the grounds of ill health, increasing member contributions, changing the accrual rate, changing the maximum level of benefits that can be built up and “the merits of defined contribution structures”.
Syndaxi Chartered Financial Planning managing director Robert Reid says such a review is essential. He says new MPs should be enrolled in a new defined contribution scheme, a plan that has been put forward by Conservative leader David Cameron.
He says: “Those in Parliament now should remain in the final-salary scheme but new MPs should be enrolled in a defined contribution scheme. I welcome the review because there can be no reform to public sector pensions until the MPs’ arrangements have been corrected – it would be gross hypocrisy. But David Cameron needs to pressure Brown on timescales because so often these things are swept under the carpet.”
Last month, the National Association of Pensions Funds estimated 52 per cent of defined-benefit schemes currently open to new members in the private sector – or 1,000 schemes – could close as a result of the recession.