In October 2010, Lord Hutton of Furness published the interim report of his independent review of public sector pensions, commissioned by the Chancellor of the Exchequer. This included a conclusion that, if the UK Government wished to make savings to the costs of public sector pension schemes in the short term, it would be more effective to increase member contributions rather than alter the benefit structure of schemes.
The UK Government subsequently announced that employee contributions to public sector pension schemes should be increased by an average of 3.2% of pay by April 2014, with the first stage of those increases being applicable from 1st April 2012. It also made it clear that it expected its proposals to apply to public service schemes across the UK, including those in Scotland.
The Scottish Government has formally set out its principled opposition to increasing employee contributions in this way and at this time. However, the UK Government has made it clear that the 2012-13 Scottish budget will be reduced by £8.4 million for each month that the Scottish Government fails to implement the increases for the NHS, Teachers' Police and Firefighters' schemes in Scotland.
Consequently, in his Spending Review statement to Parliament on 21 September the Scottish Government's Finance Secretary, John Swinney, confirmed that unless the UK Government refuses to change its position, the Scottish Government will have no choice but to reluctantly apply the increases in employee contributions for NHS, Teachers', Police and Firefighters' schemes in Scotland.
On 7th October 2011 the Scottish Government launched formal consultations on the application of this policy to those four schemes. The consultations will run until 17th November, 2011. To see the consultation documents and for information on how to respond, please click on the appropriate links, below:
Limiting the impact on lower paid staff
The Scottish Government takes its commitment to affordability, sustainability and fairness in public sector pension deals seriously. In developing the range of proposed increases, it has therefore paid considerable attention to protecting the low paid; minimising the risk of opt outs from the scheme; and ensuring that the additional burdens fall on those with the greatest ability to meet them, so that higher paid members pay proportionately more. Proposals on protection include:
- reinforcing the importance the Scottish Government attaches to the Scottish Living Wage, by ensuring that full time scheme members earning less than £15,000 a year will face no increases at all;
- Offering partial protection to the newest members of the scheme to reduce the risk of opt-out.
Additionally, the Scottish Government is aiming to ensure that no-one in Scotland pays higher levels of contributions than their UK counterparts.
In these ways, the Scottish Government is endeavouring to make these changes as fair as possible.
Applying this policy to the Local Government Pension Scheme in Scotland
In the case of the Local Government Pension Scheme in Scotland, Mr Swinney announced that the Scottish Government will leave decision making on whether to apply these increases to the Local Government Pension Scheme to those who manage that Scheme.
Longer Term Reforms
Since March 2011 the UK Government has been developing its response to Lord Hutton's 27 final recommendations on reforming public sector pensions. The Scottish Government will consider these recommendations and the UK Government's response to them in due course and is committed to doing so in consultation with key stakeholders.
If you would like to discuss the proposals set out in the consultation document, please telephone Policy Branch on 01896 892471.