Scotland business

Impact of public sector pension plans on Scots workers

Pension file

About a million Scots - one in five - look to public sector pensions, and there is little prospect they'll avoid the changes being recommended to the UK government by Lord Hutton.

Occupational pensions are an issue reserved to Westminster for legislation. There is some room for changes at the margins on some pension schemes, but not much.

For police, fire, the armed forces and civil service, the pensions are handled in the same way across the UK, making any difference in Scotland highly unlikely.

There is more room for differences in the approach to teachers and NHS staff, as well as local government workers. These are handled under separate administrative arrangements in Scotland, and changes to them can be applied in slightly different way.

For teachers and the NHS, any changes to the scheme have to be approved by both the Westminster and the Scottish governments, which could force the next Holyrood administration to take a stand for or against reforms.

Local government workers have the only one of the six schemes to be "funded", in that assets are built up over time, though not enough to fund the liabilities.

Contribution variations

A report by Audit Scotland and the Accounts Commission for Scotland, published last month, recommended that Scotland should continue to have these strong links with the UK pension schemes.

It found that the six schemes paid out £2.8bn to Scottish pensioners during 2009-10, with employees paying £814m to their expected long term costs and public bodies finding £2.2bn.

It highlighted the wide variations between public sector schemes, with "no clear rationale for some of the variation in contribution".

Among its recommendations, it said the Scottish government should work with councils on reform of the local government pension scheme.

"They should have a clear policy on whether to set a cap on the level of future employers' contributions as a percentage of pay," said the Accounts Commission.

Commenting after publication of the report, a spokesman for the Scottish government welcomed it, and said public service pensions "must remain affordable, sustainable and fair to Scotland's communities and the public service workers who serve them".

He went on: "Occupational pensions policy is reserved to Westminster. Although Scottish ministers have devolved powers for some public service pension schemes, these are subject to significant legislative and financial constraints."

The SNP administration will consider the report "in the light of the UK government's formal response", which is unlikely to be public before the Holyrood election in May.

He added: "When considering how to respond, the Scottish government will also continue to discuss its approach to public service pensions with key partners and stakeholders in Scotland, including representative trade unions and employers."

'Back pocket'

Trade unions say they have already negotiated deals with government and public agency employers that ought to address the challenge of rising costs and the growing burden for future taxpayers.

Leading figures in public sector unions aimed their fire at the decision already taken by the Chancellor, George Osborne, to increase pension contributions across the public sector by 3.2% of pay. That is to be introduced from spring of 2012.

There was less concern about the change from final salary pensions to average salary, so long as the average can be calculated in a fair way.

Dave Watson, Scottish organiser of Unison, commented: "In Scotland, we already have agreements to deal with the additional costs of longevity and many of the other issues addressed in the Hutton Report.

"What's happened now is that the UK government has done a straight grab from our pension funds by requiring a 3.2% increase in contributions. Not one penny of this will go into Scottish pension schemes. It will simply go into George Osborne's back pocket."

He added: "Our members will say this for what it is - it's daylight robbery.

"They strongly value the benefit of their pension scheme, and I would not rule out industrial action if a negotiated agreement cannot be reached".

Alex McLuckie of the GMB union, said the increased cost of pension contributions would push some lower-paid workers - and particularly women with part-time jobs - into giving up on pension savings.

She said: "When these women are faced with the choice, that increase in pension contributions, no increase in their pay, VAT going up, household bills rising all the time, they've got a choice to make, and we fear the choice they'll make is to feed the kids today and not save for something that might happen in 20 or 30 years time".

Also responding to the Hutton report, Liz Cameron, chief executive of the Scottish Chambers of Scotland, commented: "Whilst we would have preferred to see a move to a more contribution based model of pension provision, the recommendation that an average salary based pension be introduced is a step in the right direction and will reduce the cost to the taxpayer, who would otherwise be subsidising an unsustainable pension model for public sector workers.

"We look forward to hearing how the UK government intends to take these recommendations forward in due course."

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