Good luck to Liz Truss for being elected as the latest Prime Minister. That’s where my goodwill ends. You see Liz, along with her predecessors (cronies) Boris Johnson and Theresa May, will benefit from a shamefully elitist government pensions system designed to favour the ruling classes in this country at the expense of its mere taxpaying electorate. As the month of September is Pension Awareness month let me make you aware of this scandal.
Members of Parliament (MPs) normally receive a pension of either 1/40th or 1/50th of their final pensionable salary for each year of pensionable service depending on the contribution rate they chose. Members who make contributions of 13.75% of their salary gain an accrual rate of 1/40th. Their scheme is known as the Parliamentary Contributory Pension Fund (PCPF) but to all intents and purposes, it is a shadow Local Government Pension Scheme.
The Trustees board is comprised of 10 Trustees, 8 of these are Member Nominated Trustees (MNTs) plus 1 appointed by each of the Independent Parliamentary Standards Authority (IPSA) and the Minister for Civil Service (MCS). So basically, the scheme is run by MPs for MPs.
To put things into context what this means is that MPs only have to serve for 20 years to get the maximum guaranteed final salary pension scheme whereas Civil Servants normally have to work 40 years to get the same benefit. By the way, the maximum pension is 50% of the final year’s salary plus a tax-free cash lump sum.
The basic annual salary of a Member of Parliament (MP) in the House of Commons is £84,144, as of April 2022. In addition, MPs are able to claim allowances to cover the costs of running an office and employing staff, and maintaining a constituency residence or a residence in London.
If you have served in great offices of state such as Prime Minister, Chancellor of the Exchequer or Speaker of the House of Commons you become entitled to a top up from a separate source, the Consolidated Fund, of 50% of your salary regardless of the number of years’ service. What this means is that if you have less than 20 years’ service as both an MP and a holder of a great office of state, you will receive the maximum pension it would normally take an ordinary civil servant 40 years’ service to earn.
The prime minister is entitled to a salary of £164,080: £84,144 for being an MP, plus a further £79,936 for being PM. The Chancellor of the Exchequer earns £71,090 (excluding £81,932 salary as a Member of Parliament (MP)) so £153,022 in total. The Speaker of the House of Commons is entitled to £156,676 annually (including £79,468 MP’s salary).
Remarkably judges are exempt from the Lifetime Allowance tax charge. This tax penalty applies once the value of your pension exceeds £1,073,100 on the occurrence of a Benefit Crystallisation Event (BCE). Income Tax is charged on the excess above this limit at a rate of 55% on the tax-free lump sum or an extra 25% Income Tax on the pension. They also benefit from paying very low contributions. Starting pay for a judge is currently about £90,000 p.a.
So, there you have it. One rule for us and another rule for them. The ruling elite of this country lining their own pockets at the expense of everyone else. It is utterly shameful. Liz Truss has the opportunity to change the elitist government pension system to a more equitable one. If she were to do it she would earn great credibility and trust. You know it makes sense. *
*The views and opinions expressed in this document may be those of the author and do not necessarily reflect the official policy or position of our firm.
All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future.