Tuesday, 31 July 2012

Government challenges Treasury on pension reform

The Scottish Government has had an angry exchange of correspondence with the Treasury over their plans for a UK Public Sector Pension Reform Bill. While pension regulation is a devolved matter, primary legislation is reserved, so this legislation could cover all public service pension schemes in Scotland
Treasury minister, Danny Alexander MP has written to Cabinet Secretary, John Swinney MSP outlining the Bill provisions. These include, as expected, the equalisation of Normal Pension Ages with the State Pension Age and transitional arrangements for those within 10 years of retirement. It is also implied that all schemes will be career average rather than final salary, although this is not clearly stated.
His letter also indicates that each scheme must have a cost cap and changes to schemes will require prior consent of the Treasury. While this has always been the case for the NHS scheme, because the Treasury underwrites the cost, it has not been the case for the Local Government Pension Scheme in Scotland. The letter implies that the LGPS will come under Treasury control in future, despite the fact that funding is a matter for local authorities, not the Treasury.
As with previous exchanges, the Treasury letters are vague on key points and the Scottish Government has sought additional clarification. The Cabinet Secretary has described the Treasury’s actions as "unwarranted interference in reform discussions in Scotland". It is hard to disagree with that analysis. However, we will need to see the further clarification and the draft Bill to be certain what exactly the UK Government is proposing and the implications for the NHS and local government schemes.
NHS Scottish negotiations are continuing with detailed consideration of the cost of different options. Clarity is also required from the Scottish Government on the key issue of year 2 and 3 contribution increases and further meetings are planned. However, the Treasury’s intervention, as set out above, clearly has an impact on the scope for negotiation.