MPs will receive a £10m pension boost if the Government accepts proposals to increase their pay from £66,000 to £74,000 in 2015.
An Independent Parliamentary Standards Authority consultation, published last week, calls for a large hike in MPs’ wages in two years time, with future increases linked to average earnings.
The consultation also suggests the final salary scheme currently enjoyed by members of Parliament should be replaced by pensions based on their career average salary.
In addition, Ipsa has proposed putting in place transitional protections so MPs who are within 10 years of retirement are not affected by the reforms.
Ipsa estimates the changes, if implemented in full, will cost the taxpayer £10m as a result of an increase in past service liabilities.
This is because MPs’ accrued final salary pension rights will be based on a higher wage when they retire.
The Ipsa report says: “Our conclusion is that the increase in pension liability from any pay increase will have to be absorbed by the taxpayer, as is the case in the other public service pension schemes.
“GAD estimates that the cost of the increased past service liabilities caused by increasing the level of pay to £74,000 to be around £10m, or £660,000 per year, spread over 15 years.”
Annuity Direct chief executive Alan Higham says: “The costs will rise dramatically because past final salary pension rights will be based on a higher salary.
“There are ways to avoid this but Ipsa has decided it would be too difficult.”