In September 2011 the Cabinet Secretary for Finance, John Swinney MSP, delivered the Scottish Government’s Spending Review for 2011 and draft budget for 2012-13. In amongst the commitments to capital and preventative spending the Cabinet Secretary announced that public sector employees from health, education, fire and rescue, and central government would see a proposed increase in their pension employee contributions of 3.4% over the next three years, as of April 1st 2012. Local government pension schemes will be treated separately, and the decision on that will be left to those who administer the Local Government Pension Scheme (LGPS).

One of the key points is that all of the above are Pay As You Go (PAYG) schemes. Broadly speaking, this means that the contributions taken in from today’s workers are used to pay those people who are retired public employees and that there are no pension funds – current employees will receive their pension entitlement from the contributions of the next generation of public sector employees, and so on. Any surplus goes to HM Treasury for reinvestment into public services; any shortfall is met by HM Treasury. The concern is that as people live longer, and the size of the public sector retracts, so the increased and prolonged shortfall must be met by the Treasury.

Over the last five years alone, the total amount paid out in pensions has risen by 30% in real terms. If this trend continues huge amounts of additional revenue will have to be raised, placing more stress on already stretched public finances.

The Hutton Review of public sector pensions felt that the ‘current system of public service pension provision was clearly not tenable in the long-term’. It proposed an end to final pension salary schemes and replacing these with a pension based on an employee’s average salary over the course of their career. In addition, it argued that the pension age of public servants should be increased to 65, and that the risk that pensions carry should be spread more equitably between state and individual.

This position is largely shared by the UK government, which retains control over occupational pension policy. The Westminster coalition government believe that increasing the contributions of UK public sector employees will save £1.2bn. It is a view also shared by Audit Scotland, who in February 2011 published their review which broadly concluded that the current system needed urgent reform in order to remain sustainable and equitable.

Those affected by the change, in the main represented by the major unions, argue that the pay freeze imposed by the Scottish Government for those earning in excess of £21,000 per annum, and the rise in the cost of living, when all factored in, mean a double digit cut in living standards.
What will be the impact of all this for employees and employers alike? What will the impact be for the tax payer?

This Holyrood magazine event will explore the often complex and seemingly impenetrable details which surround public pensions. Speakers will simplify the choices that are available to individuals, policy makers and fund managers alike, and bring some clarity to the current position.

It will look both at the political and technical issues affecting public pension pots in Scotland and aims to put the debate into context. It offers fund managers the chance to hear the political debate firsthand and an insight into the social issues involved in changes to pension plans, while also discussing fund-management-related challenges. At the same time, it aims to cater to those on the periphery, such as people who act as trustees or sit on investment councils, who do not directly make the investments but are responsible for overseeing management of the funds.

We very much hope you can join us.