Pension contributions

It has been a busy day on pensions today with the Cabinet Secretary making an emergency statement in the Scottish Parliament on public service pension contributions.

Started with several discussions with MSPs and media, mostly confused about the reserved and devolved aspects. My MSP briefing was aimed at clarifying the issues prior to the Cabinet Secretary's statement. In essence primary pension legislation is a reserved matter for Westminster. This includes the state pension scheme and provisions that cover all pension schemes like taxation. However, public service pension regulations are devolved. This includes the important aspects of scheme design, including pension contributions.

In practice, as he said today, he has no control over the civil service scheme, needs treasury approval for changes to NHS and teachers, and generally follows the UK line on police and fire. The exception is local government over which the Scottish Parliament has direct control. In particular, this appears to be a surprise to the English based media. It shouldn't be as our local government scheme is significantly different from the scheme south of the border.

If pensions aren't complicated enough we then move on to the Barnett formula. In December the Cabinet Secretary wrote to us saying the Scottish share of the £2.8bn cash grab from the Treasury was scored against the Barnett formula. So if he didn't increase contributions then that would cost Scotland £375m. This was made up of £140m for local government, around £140m for the NHS, £60m for teachers and the balance from the smaller schemes. We challenged that assessment as it didn't tie in with my reading of the Treasury Barnett paper issued with the CSR. In March we got a 'clarification' from the Cabinet Secretary that only the NHS and Teachers were scored against Barnett. For the rest there was just an 'expectation' from the Treasury that Scotland would do as they wished.

Well I have an 'expectation' that my golf handicap might improve, but in reality that's not very likely. You would have thought that an SNP Cabinet Secretary wouldn't feel obliged to kowtow to a Treasury 'expectation' either. For example, when Scotland introduced free care for the elderly the then Scottish Government suggested to the Treasury that they might like to hand over the savings in welfare benefits. Not surprisingly they got short shrift. 

Today's statement now gets a bit more confusing, added to by John Swinney's answers to questions. The NHS and Teachers Barnett consequences appear to have risen from £200m to £235m and the overall Treasury expectation from £375m to £400m. I know inflation is rising, but that's a lot over a few months!  Then he avoided answering the direct question of what he would do about LGPS contributions. I hope I am wrong, but that begins to sound like him spotting an opportunity for a bit of Scottish 'tax' raising at the expense of local government staff.

His analysis of the UK government's plans was spot on and we have welcomed that in our response. This is an unfair and unnecessary attack on public service workers. These additional contributions are not necessary to fund pensions in Scotland; they are simply a ‘tax’ on staff to pay back government debts that were raised to bail out the banks. Incidentally, with classic bad timing, RBS announced £1m share payouts for Directors. You couldn't make this up! 

We also welcomed his commitment to further dialogue. Nobody wants a major industrial dispute in Scotland. So we need to find a better way to avoid large scale opt-out that will wreck the schemes and leave both governments with longer term costs.