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


Part 3. The costs and governance of the five main unfunded schemes



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Part 3. The costs and governance of the five main unfunded schemes

Key messages

• In March 2010, there were 172,300 pensioners and dependants in the five main unfunded schemes, 13 per cent more than in 2005. Payments to pensioners and their dependants from the unfunded schemes have increased by 32 per cent in real terms over the past five years from £1,468 million to £1,936 million. This increase in pension payments reflects the increase in the numbers of pensioners combined with the underlying growth in pay over time.

• Employers’ contributions in the unfunded schemes have increased by 15 per cent in real terms over the past five years, from £1,167 million to £1,338 million. However, the increase reflects underlying growth in employment and pay in the public sector. The cost of pension contributions for the three largest schemes has remained relatively constant at between 3.4 and 3.7 per cent of the Scottish budget.

• The SPPA has indicated that contribution rates for the largest unfunded schemes (teachers and NHS) may need to increase by two to four per cent of pay. Under the cap and share agreement this could lead to significant increases in employees’ contributions. Recent decisions by the UK government should help to alleviate further the potential for increases in employers’ contribution rates. However, the precise effect of these decisions and existing pressures on pension costs - and ultimately on the spending power of the Scottish budget - will not become apparent until later in 2011 or 2012.

• The governance arrangements for the unfunded schemes could be improved. Responsibilities are divided between many different bodies and it is unclear currently who is accountable and responsible for the overall effectiveness of the schemes.






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