Ageing population warning over pensions

Elderly woman with shopping trolley bag People are living longer than previously forecast

An ageing population could cause "significant cost pressures" on pensions, Scotland's public spending watchdog has warned.

Audit Scotland said the number of pensioners and dependants in the five main unfunded schemes increased by 13% to 172,300 in the past five years.

The number in the local government pension scheme increased by 11% to 141,400 at the same time.

Payments to pensioners increased by 32% in real terms over the period.

Audit Scotland found that employers' contributions increased by 19% in real terms over the period to £2.2bn.

Despite growing pressure, contributions for the three largest unfunded schemes remained relatively constant at between 3.4% to 3.7% of the Scottish budget.

The auditors' report, the Cost of Public Sector Pensions in Scotland, recommends that councils should have a clear policy on the level of future employers' contributions as a percentage of pay.

It suggests the Scottish government should consider whether differences among schemes, such as contributions, are necessary to meet each scheme's objectives.

Start Quote

It costs the Scottish public sector £2.2bn a year to support the six major public schemes”

End Quote Robert Black Auditor General for Scotland

Contributions were found to vary from 11.5% to 24.7% while employees' rates varied from 1.5% to 11%.

The report said: "Significant cost pressures have built up in all of the schemes as a result of people living longer than previously forecast while long-term interest rate changes have increased the schemes' reported liabilities."

A review of public pensions across the UK is under way, chaired by Lord Hutton.

Robert Black, Auditor General for Scotland, said: "Pensions are a large and important part of public sector pay - one in five Scottish people have or will get a public sector pension and it costs the Scottish public sector £2.2bn a year to support the six major public schemes.

"With major UK-wide pension reforms imminent, the Scottish government should look at the differences between the country's schemes, and consider how to implement changes that will be both fair and affordable in the long term."

'Further reform'

John Baillie, chairman of the Accounts Commission for Scotland, said: "The Local Government Pension Scheme provides a very important service to employers and staff across Scottish councils and a range of associated bodies.

"However, over the past five years employers' contributions to the scheme have increased by 25% in real terms to £836m a year.

"Scotland's councils should now decide on the extent and pace of further reform to ensure the scheme stays sustainable. This includes considering how to share the increasing costs of pensions most fairly with employees."

Theresa Fyffe, Royal College of Nursing Scotland director, said the average annual pension for NHS staff was £7,057 - which she said "explodes the myth" of gold-plated public pensions.

And she said changes had already been made to the NHS pension.

"This included an increase in contributions to the scheme, progressive increases for higher earners, an increase in pensionable age for new entrants and protection for the tax-payer against increased liabilities," she said.

"There is no need to make any further changes to the NHS pension at this stage: the impact of the changes already agreed should be monitored instead."

Conservative finance spokesman Derek Brownlee said changes would have to be made to all public sector pensions.

"Reform is inevitable - the fact is these pension schemes must either be changed to be more affordable or the benefits should be preserved by an increased contribution from workers," he said.

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