MPs, or Members of Parliament, are individuals elected by the UK public to represent their interests and concerns in the House of Commons. They play a crucial role in the legislative process, considering and proposing new laws, as well as raising issues that matter to the public.
While politicians like to tell voters they’re ‘just like us’, one clear difference is pay. To be in the top 1% of UK earners, you need to earn more than £181,000. The Prime Minister of the UK can expect to earn around £166,786 in the 2024/25 tax year, with Cabinet Ministers earning close to £158,851.
But the financial benefits don’t stop there. Like many public sector workers, MPs will also receive a generous defined benefit pension when they retire.
Who decides what MPs get paid?
In short, the Independent Parliamentary Standards Authority (IPSA) is responsible for MPs’ pay and pensions. But this wasn’t always the case. Parliament used to be in control of their own compensation. MPs would consult experts, such as the Senior Salaries Review Board, then vote on whether their salaries increased or not.
What changed?
In 2005, The Freedom of Information Act 2000 came into effect and immediately campaigners requested details of MPs’ expenses. This began the slow unravelling of the MPs’ expenses scandal of 2009 which had a profound impact on public confidence in British politicians.
In response to the expenses scandal, the government announced the creation of IPSA, which came into effect in 2010. These days IPSA makes decisions on the pay, pensions and reasonable expenses of the 650 elected MPs and their staff in the UK.
MPs’ salaries
The annual changes in MPs’ pay are determined based on the changes in average earnings in the public sector, as indicated by the Office for National Statistics (ONS) figures. This means that the annual basic salary paid to all MPs is adjusted in accordance with the trends in average earnings.
As of April 2024, MPs receive a basic annual salary of £91,346. It’s worth noting that ministers who are also Members of the House of Commons receive two types of salaries: a MPs salary and a ministerial salary. For example, a Cabinet Minister would receive an extra £67,505, while the Prime Minister gets a further £75,440.
MPs’ pensions
Most modern workplace and personal pensions are defined contribution pensions. On retirement, the amount your defined contribution pension is worth depends on how much money you’ve contributed and the performance of your investments. With a defined benefit pension, the employer guarantees to pay a set retirement income, regardless of how the underlying investments perform.
In 2015, alongside other public service pension schemes, the MPs’ Parliamentary Contributory Pension Fund (PCPF) was reformed. Prior to this, their defined benefit pensions were based on an MP’s final salary, but now they’re calculated based on their average salary over their career. Additionally, the age at which pensions become payable has been aligned with the State Pension age, rather than fixed retirement ages of 65 or 60.
Parliamentary pension double standard
In July 2023, the Chancellor announced the Mansion House Reforms, which aimed to boost investment in UK companies through pension schemes. The Mansion House Compact is a pledge made by nine UK pension providers to invest at least 5% of their default funds in ‘unlisted UK companies’ by 2030.
Unlisted companies are businesses that aren’t traded on a public stock exchange. These earlier stage businesses are generally considered to be riskier, and many of them could fail. At the same time, investing in unlisted companies usually comes with higher costs for pension savers.
Why does this matter? MPs own pension scheme (the PCPF) has underinvested in the UK by their own standards. While UK companies make up 3.6% of the FTSE All-World index series, a report published in The Times found that the PCPF scheme only allocated around 1.3% of its total equities to the UK.
In short, the government has been pushing for more pension investment in UK companies - except for their own pension scheme. The trustees of the scheme (who are current and former MPs) have made the decision that the UK is a bad bet for their retirement, but not for yours.
How to kickstart your pension savings
While we wouldn’t necessarily recommend you become a politician, there are lots of other things you can do to boost your pension savings. Our calculators can help you plan ahead for retirement. Use our Pension Calculator to understand how much you might need to save into your pension. If you feel there’s a gap between your projected and desired retirement income, you can consider combining your old pensions and contributing to your pension to boost your savings.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
