Local government pensions

Today I was in Lerwick on the Shetland Isles talking at the branch AGM about changes to the Scottish Local Government Pension Scheme. This is latest, and probably the most scenic, of a number of meetings in recent weeks on this issue.

The first legitimate question members should ask is why are you here talking about a new scheme less than four years since the current scheme was implemented? Our scheme is well funded, far better than most other pension schemes, and we had an agreement on sharing any future costs. Fair question and the answer is that no one in Scotland - government, employers or unions instigated this. It is an unwarranted interference from the Treasury, using primary legislation in a way that we have not seen before.

The main change is a move from a final salary to a career average scheme (CARE). Instead of the pension being calculated on salary in the final year of service it is calculated each year and then the annual 'pots' are aggregated. In general, this type of scheme benefits those who have a flatter career path as against those who get promotions at the end of their career. However, the devil is in the detail and key issues for the negotiations will be the annual revaluation of the 'pots' and the accrual rate.

The next big change is bringing the normal retirement age (currently 65 for men and women) into line with changes in the state retirement age. This will be very challenging for many jobs in local government and the wider family who use the scheme. We can consider  a flexible early retirement scheme, but that will have a cost that would have to be paid by everyone, including those who don't want or can't afford to retire early.

There are a range of other provisions that we will be reviewing and these are set out in the current Scottish Pensions Bulletin (see our web site). One of those is the governance of the 11 funds that administer the scheme. At present the committees that manage these funds are made up entirely of councillors and that will have to change to meet the new UK and EU statutory requirements. The funds have assets of more than £24bn and there are legitimate questions to be asked about how these funds are invested. For example, 45% of them are invested in overseas equities rather than in UK or Scottish economy. We may also need to question why we need 11 separate funds in Scotland and could they be more efficiently managed in a different way.

At this stage we are seeking members views on the broad options we should be considering. At the next stage we should have some costed options so members can balance, say early retirement with other benefits and what it will cost in contributions. We hope to have an outline proposal by around June and a full membership ballot in August.

At all of the meetings I have done in recent weeks members have raised a range of legitimate concerns about how all this will impact on their pension. It is after all the biggest investment they make. What really irritates members is stupid politicians and newspapers talking about 'gold plated pensions'. The average Scottish local government pensioner is receiving £4,700 per annum - barely bronze plated! They are also contributing to their retirement cost, unlike some employers who moan about pensions, yet expect the taxpayer to fund their employees retirement benefits, while paying themselves huge pensions.

Our members in Scottish local government have stood up and defended their pensions. They are fortunate as a consequence to have a better pension than the government planned for them and they won't pay the pensions contribution 'tax'. They have always been prepared to pay their fair share of the cost of pensions, but they won't be lectured by the irresponsible fat cats who got the economy into the mess we are in today.