Prime Minister Gordon Brown has ordered a major review of MPs' pension arrangements, designed to put the brakes on their escalating cost to the taxpayer.
Mr Brown wrote to the chairman of the Senior Salaries Review Body Bill Cockburn asking him to "consider the full range of options for reducing the Exchequer contribution" to MPs' pensions, which currently cost the Treasury around £12 million a year.
The Prime Minister made clear he wants the SSRB to look at the possibility of increasing the retirement age or ending the final-salary scheme for the pensions, which are widely regarded as gold-plated.
The move will inevitably spark speculation that Mr Brown may be seeking to pave the way for reform of public sector pension schemes, which are frequently criticised for being over-generous because they have not followed hundreds of private schemes by moving to defined contribution plans dependent on stock market investments.
The total Government liability for public sector pensions has been officially estimated at around £650 billion.
MPs put off the review of their own pension arrangements recommended by the SSRB in January 2008, voting to delay the inquiry until the cost of pensions hit 20% of the total MPs' payroll bill, which stands at around £130 million.
The review was triggered when the Government Actuary's Department warned the Prime Minister that the 20% threshold was likely to be breached.
At present, MPs with 20 years' service can retire on a pension of £30,000 a year, compared to a private sector pension average of around £25,000. Contributions paid by the taxpayer amount to 27% of an MP's £63,291 salary, around double the typical level of employers' contributions in the private sector.
The cost to the Treasury of MPs' pensions has risen by around 25% in the past few years, from £9.8 million in 2003 to £12 million last year. Over that period, MPs themselves were asked to contribute only an extra £700,000.
A further £15 million of taxpayers' cash was spent last year to plug a £100 million black hole caused by the Treasury taking a "contributions holiday" from the scheme between 1989 and 2003.
