Employer seminars

Pensions policy overview

November 2011

Presentation By: Christine Marr, STSS Policy Manager

www.sppa.gov.uk

Aim of today’s presentationProvide:

• role of Policy

• a narrative around various pension reforms

• what the reforms intend to cover

• the current position and;

• the impact on and position of the Scottish Government

Policy role at SPPA

– prepare in accordance with Government policy the regulations governing the schemes for which the Scottish Ministers have regulatory responsibility (i.e. Teachers, NHS, LG, Police and Fire in Scotland)

– determine questions under the regulations on which there is a right of appeal to the Scottish Ministers, and

– advise the Scottish Ministers on public sector and occupational pensions policy generally

Background informationBackground informationOccupational pensions policy reserved to UK Govt.

• Scottish Ministers have limited powers for STSS:– design secondary legislation, but -

HM Treasury has a legal vetoand a financial one

• Scheme key facts based on latest agreed accounts for 2009/10:– 78,452 actives members,15,382 deferred members, 58,766 pensioners and dependants. – most actives on NPA 60 arrangements– £521m total contributions and £590m pensions payments

Additional changes made to pensionsNew UK Government formed 20 June 2010

Introduced wider policy changes that impacted or will impact on the public sector pensions

Annual Indexation (RPI to CPI) (reserved)

Tax Relief (reserved) - to be covered later in today’s seminar

Continued previous UK Government’s policy on

auto-enrolment (reserved) - to be covered later in today’s seminar.

Background to Public sector reforms

• UK Government pursuing an agenda of reform

• Independent Public Sector Pensions Commission chaired by Lord Hutton

• Interim report issued October 2010 recommending increases in employee contributions – short term proposals

• Final report published on 10th March 2011 set out a case for reform and made 27 recommendations –long term proposals

Immediate changes – increasing employee contributions

• Average 3.2% of pay increases

40% from April 2012; next 40% from April 2013; final 20% from April 2014

• Expected to apply in Scotland (across UK):

Absolute confirmation CST letter 5 September 2011If not, £8.4m deducted from Scottish Budget for each month(£3m STSS)c. £100m in 2012-13 (£36m STSS), rising to cumulative over £500m by April 2015 (over £200m STSS)

Short term proposals – increasing employee contributions

Scottish Government:

– recognise sensitive and difficult issue– FM letters (4 Oct) and SPPA website– opposed in principle (wrong time, wrong approach)– lobbied UK Govt (unsuccessfully)– tried to explore options with employers/unions

Concluded no real alternative: – introduce for 2012/13 - consultations 7 Oct to 17 Nov– review feedback: probable consultation on – regulations December 2011 into January 2012– targeting introduction from April 2012

Long term proposals

The UK Government is proposing new set of arrangements from 2015 based on scheme design recommendations made by Hutton

Has designed a “reference scheme” to set cost ceilings for Teachers, NHS, Local Govt. and Civil Service schemes

Others to follow

No cost ceilings set yet for Scotland

Long term proposals – the current offer in England and Wales

The reference scheme is based on:

• 60ths accrual rate• NPA linked to SPA• CARE accrual• Transitional protection for those within 10 years of retirement at 1/4/2012

Scheme specific discussions will allow tailoring of reference scheme but must remain within set cost ceiling. Current discussions in England and Wales aim to have outlined agreement of reformed schemes by end of year.

Long term proposals - the position in Scotland

• Scottish Government yet to decide

• still further details required on the UK Government proposals

• any Scottish specific differences would have to be met from the Scottish budget whilst recognising the HMT restraints on the scheme

• expect Scottish process & timetable soon:–timetable to suit Scotland, not UK Govt–continued commitment to engage stakeholders

How to find out more?

• SPPA website;

• MAG(S) representative;

• DfE website (though not certain Scotland will follow E&W).

Thank you for listening-any questions?

Scottish Public Pensions Agency

7 Tweedside Park

Galashiels

TD1 3TE

www.sppa.gov.uk

Contact Details: christine.marr@scotland.gsi.gov.uk