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					                                                                      ANNEX A

                   WRITTEN MINISTERIAL STATEMENT

        OFFICE OF THE LEADER OF THE HOUSE OF COMMONS

          PARLIAMENTARY PENSIONS – SCHEME VALUATION

DATE OF STATEMENT: 30 March 2006

Leader of the House of Commons and Lord Privy Seal (Mr. Geoff Hoon):

The Parliamentary and Other Pensions Act 1987 requires the Government
Actuary to make triennial reports on the financial position of the Parliamentary
Contributory Pension Fund. His latest report, dealing with the position of the
Fund as at 1 April 2005, is published today and a copy of the report
Parliamentary Contributory Pension Fund: Report by the Government Actuary
on the Valuation as at 1 April 2005 [HC 979] has been laid before the House.
It includes his recommendation on the rate of Exchequer contributions to be
made to the Fund, which the Act requires the Government to follow. The new
rate of Exchequer contribution will be implemented in accordance with the
requirements of the Act from 1 April 2006.

The Government Actuary has assessed that the underlying cost of the
benefits accruing under the Parliamentary pension scheme is lower than the
cost assessed at the previous actuarial valuation in 2002 (27.4 per cent of the
total pensionable payroll of scheme members compared with 28 per cent).
This is primarily because the Government Actuary has assumed, in the light of
recent experience, that MPs will leave and retire at higher ages than was
assumed previously. Furthermore, the Exchequer share of the underlying
cost has decreased due to higher contributions being paid by most of the
scheme’s members.            The Government Actuary expects members’
contributions to total 9.3 per cent of the payroll, compared with 8.7 per cent at
the 2002 valuation. The Exchequer’s share of the underlying cost has
therefore fallen from 19.3 per cent of payroll to 18.1 per cent.

However, despite the fall in the underlying cost of accruing benefits and in the
Exchequer share of that cost, the Government Actuary has recommended an
increase in the level of Exchequer contributions to the Fund from the current
level of 24 per cent of payroll to a new level of 26.8 per cent. This is because
there has been an increase in the deficit in the Fund (that is, a shortfall of
assets to the estimated value of liabilities) since the Government Actuary’s
last valuation in 2002 from £25.2 million to £49.5 million. (For the purposes of
the actuarial valuation, the value of the Parliamentary Contributory Pension
Fund’s assets at 31 March 2005 was assessed as £278.6 million).

The deficit would have risen by around £7 million even if the experience of the
scheme had developed entirely in line with the assumptions made at the 2002
valuation - because of the interest that is assumed to accrue on the deficit,
and because the increase in Exchequer contributions following the previous
valuation only took effect a year after the valuation date. However, the deficit
has increased further because the experience of the scheme has differed
from what the Government Actuary assumed at the 2002 valuation, and also
because the Government Actuary has changed his assumptions about what
will happen in the future.

The main area where the experience of the scheme has differed from what
the Government Actuary assumed is in relation to investment returns, which
were lower than expected. In common with most other pension funds and
other investors in equity shares, the Fund experienced negative investment
returns in the first year covered by the Government Actuary’s report and
positive returns in the subsequent two years. Although the investment returns
over the three years as a whole were positive, they were lower than had been
assumed.      Overall, divergence of the scheme’s experience from the
Government Actuary’s assumptions made at the 2002 valuation contributed
around £5 million to the increased deficit.

The main area where the Government Actuary has changed his assumptions
about what will happen in the future is in relation to the longevity of members.
Again, in common with other pension funds, the Fund has been affected by
the fact that people are living longer. The Government Actuary has assumed
that the life expectancy of a 65-year old man has increased by 2 years to 19.5
years.      Overall, changes in the Government Actuary’s assumptions
contributed around £13 million to the increased deficit.

The contributions by the Exchequer to the Fund have fluctuated over the
years, and the Exchequer has benefited in the past from the fact that the Fund
has been in surplus and that lower contributions have been paid as a result.
The level of Exchequer contributions over the period 1989 to 2003 varied
between 4.4 per cent and 9.6 per cent of payroll, representing a saving of
between 6.6 per cent and 11 per cent of payroll over the Exchequer’s share of
the underlying cost of the accruing benefits.

Separately from his report on the actuarial valuation, the Government Actuary
has estimated that the capitalised value as at 1 April 2005 of the saving to the
Exchequer over the period 1989 to 2003 (that is, the difference between the
actual level of the Exchequer contribution and the Exchequer share of the
underlying cost of the accruing benefits) is £50 million.

The Government will be drawing the increased Exchequer contribution to the
Fund to the attention of the Senior Salaries Review Body (SSRB) when it next
commissions the SSRB to make recommendations on the pension element of
the Parliamentary remuneration package.

The increase of 2.8 per cent in the Exchequer contribution may be broken
down as follows:

      Lower ongoing cost of benefit accrual as a result of    -0.6 per cent
      changes to actuarial assumptions
Higher contributions from scheme members       -0.6 per cent

Higher deficit contributions as a result of
divergence of experience from 2002 valuation   +1.5 per cent
assumptions

Higher deficit contributions as a result of    +2.5 per cent
changes to actuarial assumptions

				
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