The cost of public sector pensions in Scotland Prepared for the Auditor General for Scotland and the Accounts Commission


The Scottish Government can influence pension scheme reform



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The Scottish Government can influence pension scheme reform

50. The UK government is primarily responsible for setting policy for public sector pensions. Within this, responsibility for some policy aspects of five of the six main schemes in Scotland (all but the civil service), including aspects of scheme design, lies with Scottish ministers, or with Scottish ministers and HM Treasury ministers jointly. The SPPA advises the Scottish Government and ministers on these matters.

51. The Scottish Government has varying levels of discretion in modifying the changes to each pension scheme in Scotland:

• The LGPS in Scotland is separate from the equivalent schemes in England and Wales. The Scottish Government determines changes to the scheme in Scotland independently of the UK government, after negotiations with employers and trade unions. However, it is important that overall the benefits and the costs of the LGPS are reasonably consistent across the UK. For example, to facilitate workforce moves the Scottish Government has regard to contribution rates in England and Wales when setting rates for the LGPS in Scotland. Differences between the Scottish scheme and those in England and Wales include a different system of tiered employees’ contribution rates and the introduction of cost-sharing arrangements (but no cap) in Scotland. Scottish ministers also adopted a different timescale for phasing out early retirement in the LGPS under the ‘rule of 85’.

• The NHS and teachers’ schemes in Scotland are separate from the equivalent schemes in England and Wales. However, as with the LGPS it is important that overall costs and benefits are in line with the rest of the UK. Ultimately HM Treasury ministers and Scottish ministers must both approve changes to these schemes in Scotland. The SPPA, on behalf of the Scottish Government, is an observer at the negotiations for England and Wales. Changes made at the UK level are taken forward in Scotland through separate negotiations between the Scottish Government, employers and trade unions. However, the UK government has an ultimate veto over decisions taken in Scotland, should it choose to exercise it.

• The police and firefighters’ schemes are UK-wide but administered at a local level. For any changes to them, the Scottish Government contributes to UK-level negotiations. The SPPA and Scottish Government Justice Directorate represent the Scottish Government at these negotiations.

• The civil service scheme operates at a UK level, although the Northern Ireland Assembly has a legally separate scheme. The Cabinet Office has overall management responsibility for its operation. The Scottish Government has no role in the operation of this scheme, although it must pay employers’ contributions for its 17,500 employees who are members of the scheme.

52. The scale of the public sector in Scotland and the long-term cost of public sector pensions mean that the Scottish Government will need to consider how the UK government-led reform process can be implemented in Scotland.

Recommendations

In considering how to respond to the findings of the Independent Public Services Pensions Commission, the Scottish Government should:

• provide a clear statement of the aims and objectives of the public pension schemes in Scotland

• ensure that it is meeting these aims and objectives by putting put in place arrangements to scrutinise pension provision across the public sector in Scotland, within the context of other aspects of public sector pay and conditions; as part of this, consider increasing the role of experts to strengthen scrutiny and decision-making

• consider whether differences among schemes in areas such as contribution rates and level of benefits are necessary to realise the objectives of each scheme

• within the legal and financial constraints which apply, decide how best to incorporate changes made at a UK level into the equivalent Scottish schemes to meet its objectives for public pension schemes in Scotland.





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