Scottish Local Government Finance Statistics (SLGFS) 2018-19

6. Pensions

Expenditure and income from local authority pension funds are entirely separate from the expenditure and income of the authorities’ themselves. In accordance with regulations 9 and 65 of the Local Government Pension Scheme (Scotland) Regulations 2014, expenditure on pensions, lump sums and the costs of managing the pension are paid from the Pension Fund. Income from employer and employee contributions is paid into this fund, which then generates investment income.

Expenditure and income figures should not be used to gauge the health of a pension fund, as the ratio of expenditure to income will depend on a number of factors, including 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.

6.1 Pension Scheme Funds Expenditure

Table 6.1 shows the expenditure for local government pension schemes in 2018-19. These expenditure figures represent payments of previously accrued pension rights. 

Table 6.1: Pension Fund Expenditure in 2018-19, £ millions

	2018-19
Pensions 1	809
Lump Sums 1	317
Other Benefits 1	0
Payments under Pensions (Increase) Acts 1	245
Total Benefits	1,370
Transfer Values 2	72
Other 3	20
Total Expenditure	1,462

Source: LFR 24

Notes

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 and other benefits.

2 ‘Transfer Values’ relate to scheme members transferring to other pension schemes, for example where a scheme member has moved to a different employer.

3 ‘Other’ includes fund administration and management costs; refunds of contributions; adjustments; and premiums. Fund administration and management costs are the largest component of this.

Total expenditure on pension scheme funds in 2018-19 was £1,462 million, an increase of 7.1 per cent from £1,365 million in 2017-18. Over half of expenditure, 55.3 per cent or £809 million, is on pensions, and lump sums account for just under a quarter of expenditure, 21.7 per cent or £317 million. Non-benefit related expenditure only relates to 6.3 per cent, or £92 million, of total expenditure on pension schemes.

Chart 6.1 shows the changes in expenditure on pensions between 2014-15 and 2018-19. Pension fund expenditure has increased by 23.7 per cent over this time period and this has largely been due to increases in expenditure on pensions which have increased by 20.4 per cent since 2014-15.

Chart 6.1: Pension Fund Expenditure from 2014-15 to 2018-19, £ millions

Source: LFR 24

6.2 Pension Scheme Funds Income

Table 6.2 shows the income for local government pension schemes in 2018-19. Income from contributions represent payments for pensionable service accrued during the year which will be paid out as part of an overall pension at a future date. Total income to pension scheme funds in 2018-19 was £4,449 million, an increase of 27.9 per cent from £3,479 million in 2017-18. 

Table 6.2: Pension Fund Income in 2018-19, £ millions

	2018-19
Employees Contributions 1	302
Employers Contributions 1	1,051
Total Contributions	1,352
Net Investments and Other Income	3,097
Total Income	4,449

Source: LFR 24

Notes

¹ This includes contributions from other employing authorities.

Contributions from employees and employers are both dependent on the number of contributing employees, both full time and part time. Total contributions increased by 5.1 per cent, from £1,286 million in 2017-18 to £1,352 million in 2018-19. 

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. This means contributions from employees and employers tends to remain stable over time, as shown in Chart 6.2.

Net investment and other income was £3,097 million, an increase of 41.2 per cent from £2,193 million in 2017-18. As shown in Chart 6.2, this income is volatile and is heavily influenced by investment conditions, for example changes in the stock market. Between 2014-15 and 2018-19, net investments and other income has ranged from a low of £701 million in 2015-16 to a high of £7,749 million in 2016-17.

Chart 6.2: Pension Fund Income from 2014-15 to 2018-19, £ millions

Source: LFR 24