Pensions Update - May 2012

Scottish Teachers’ Superannuation Scheme

Following the announcement in March, by Michael Russell, Cabinet Secretary for Education and Lifelong Learning, that Scottish Government would commence scheme discussions, an initial meeting of the Scottish Teachers’ Pensions Negotiations Group took place on 25 April.

This meeting comprised representatives of Scottish Government, employers and teaching unions.  The membership of the group was agreed and 11 seats will be provided to teaching unions, 4 of which will be taken up by EIS.  The Government will be supported by representatives of the Government’s Actuary Department (GAD) and Scottish Public Pensions Agency (SPPA).

Scottish Government stressed that while it agreed that teachers' pensions in Scotland should be affordable, sustainable and fair it opposed the piecemeal approach by the Coalition Government and the lack of transparency in discussions south of the border did not help create a context for harmonious discussions in Scotland.

Correspondence between Danny Alexander, Chief Secretary to the Treasury and John Swinney, Cabinet Secretary for Finance, was copied to the Group.  Mr Alexander had informed Mr Swinney that the Coalition Government has decided that "some core elements of the reformed framework that must apply to all schemes”, including an automatic link between Normal Pension Age and the State Pension Scheme in all schemes except for the police, firefighters and armed forces.

Mr Swinney has sought clarification on this point since, to date, Scottish Government has believed that the constraint would be the cost envelope.  Mr Swinney stated that a "mandated direct link (between the Normal Pension Age and the State Pension Age) would severely limit the flexibility of the scheme negotiations that have already began in Scotland and would effectively change the basis for pension reform after negotiations have commenced”.

A response is awaited from Mr Alexander on whether there is discretion to the negotiators to arrive at a pension age which is different from the State Pension Age (SPA) as long as costs are met.  An answer to this point will be crucially important in scheme discussions.

The other crucial factor in scheme discussions is the cost envelope for scheme discussions.  This is still awaited from the Government Actuary’s Department.

Scottish Government has stated its support for the new scheme is to be based on career averaging but accepts that teachers’ unions have not agreed this point and that the costings should include the cost of retaining a final salary scheme.

There is no concluding date for discussions although it is accepted that there is benefit in clarifying the situation in Scotland as soon as practicable particularly in relation to the issue of contribution increases for 2013-14 and 2014-15.

While the proposals for the Teachers’ Pension Scheme (England and Wales) do not apply in Scotland there is agreement that these proposals should form a starting point for discussions here.  The main terms of these proposals are:

(i) a career average scheme to be introduced from 1 April 2015;
(ii) accrued pensions to that date to be protected;
(iii) employee contributions to be an average of 9.6%;
(iv) an accrual rate of 1/57;
(v) benefits to be revalued annually in line with the Consumer Price Index (CPI) plus 1.6%;
(vi) pensions in payment to be increased annually in line with CPI;
(vii) access to pension at 65, when such an age is below the State Pension Age, should be subject to 3% per year actuarial reduction.

The Coalition Government has also offered a protection for those within 10 years of retirement and a tapered protection for those between 10 and 13.5 years of retirement.

Local Government Pensions Scheme

When Scottish Government announced that it would introduce contribution increases for teachers in Scotland it left decisions on contribution increases in the local government schemes in Scotland to individual scheme decisions.

All music instructors, some QIOs, some Educational Psychologists and college lecturers are in Local Government Pension Schemes which operate in Scotland.  There are 11 such schemes.

Also, while the principal Local Government Unions in England and Wales (Unison, GMB and Unite) have agreed the principles of a new scheme in England and Wales there has been no such agreement in Scotland.

Therefore, as at 1 April 2012, there is no change to the Local Government Pensions Scheme in Scotland.