Scottish local government finance statistics 2015-2016

5. Local Government Pensions

• Total Expenditure was £1.2 billion in 2015-16, an increase of 4.6%;
• Total Income was £1.9 billion, a decrease of 64%;
• 95% of expenditure was on benefits, an increase of 5.4% on the previous year;
• Income from investment and other income was £0.7 billion, a decrease of 83% on the previous year. Investment income can be highly volatile and has ranged from negative £1 billion to plus £4.2 billion over the past 10 years;
• Excluding investments, income increased by 5% on the previous year.

The income and expenditure from local authority pension funds are entirely separate from the income and expenditure of the authorities themselves. Income from employer and employee contributions is paid into the Pension Fund, which also generates investment income. Expenditure on pensions, lump sums and the costs of managing the pension are paid for from this fund.

The income/expenditure figures should not be used to gauge the health of a pension fund as the ratio of income to expenditure will depend on a number of factors including the age of the fund and whether it is open or closed to new members. The relative financial health of the pension scheme is gauged through the three-yearly actuarial valuations carried out on each of the funds.

Pensions Expenditure (£thousands)

Pensions Income (£thousands)

Local Government Pension Scheme Funds are operated as separate funds to other accounts. In accordance with regulation 4 of the Local Government Pension Scheme (Benefits, Membership and Contributions) (Scotland) Regulations 2008, and regulation 35 of the Local Government Pension Scheme (Administration) (Scotland) Regulations 2008, employer and employee contributions are paid into the fund, along with income from investments, and pensions and lump sum benefits are paid out of the fund. The income and expenditure from these funds are therefore entirely separate from the income and expenditure of the authorities that administer the funds.

Tables 5.1 and 5.2 show the collective income and expenditure for the Local Government Pension Scheme for the year in question, with income from contributions representing payments for pensionable service accrued during the year which will be paid out (as part of an overall pension) at a future date and expenditure on pensions representing payments of previously accrued pension rights. The relative financial health of the pension scheme is gauged through three-yearly actuarial valuations of each of the eleven funds.

Table 5.1: Local Government Pension Scheme Funds Expenditure 2011-12 to 2015-16

£thousands

1. Payments under the Pensions (Increase) Act 1971 relate to costs associated with uprating of pensions. In some cases local authorities were unable to separately identify this cost and included it within pensions, lump sums & other benefits.
2. Transfer Values are due to scheme members transferring to other pension schemes (for example where a scheme member has moved to a different employer).
3. "Other Benefits" includes, Fund Administration and Management Costs (the largest component); Refunds of Contributions; Adjustments; and Premiums.
Source: Local Financial Returns: LFR 24

Table 5.1 details the total expenditure of the Local Government Pension Scheme Funds in Scotland since 2011-12. Total expenditure increased by 4.6% (£54 million) between 2014-15 and 2015-16, with the vast majority (95%) of expenditure being on benefits. The increases in Pensions and Payments under Pensions (Increase) Acts should be interpreted with care, as much of this can be attributed to improved reporting.

Table 5.2: Local Government Pension Scheme Funds Income 2011-12 to 2015-16

£thousands

Source: Local Financial Returns - LFR 24

Table 5.2 shows local government pension scheme funds income since 2011-12. Contributions from employees and employers are both dependent on the number of contributing employees (full time and part-time) and increased by 4.7% between 2013-14 and 2014-15. Contributions from employees are fixed at a set percentage of pay, depending on level of salary. Contribution rates from employers are variable and are reviewed on a triennial basis, with actuaries determining the contribution rates for the following three years.

Net investment and other income has fallen by 83% compared with 2014-15, however investment income in 2014-15 was at a historic high and this line is highly volatile. Investment income is heavily influenced by investment conditions (e.g. changes in the stock market) and ranged from £516 million in 2011-12 to £5,396 million in 2014-15.