Are Scottish MSPs’ Pensions really that generous ?

[thebarns]

Fools may have read about some controversial topics being discussed in the Scottish parliament recently, indeed some of these topics have been generating worldwide interest…….

Various twitter accounts yesterday posted a link to an Article by John Ralfe in the Telegraph, normally paywalled but occasionally you are able to read it for free.

The author is a pensions expert and had been looking at the nitty gritty of the public sector pensions of Scottish Members of Parliament.

The scheme is incredibly generous - a 1/40th accrual final salary scheme - now I accept that the life of an MSP is an uncertain one and I hear the arguments that some of them, perhaps a small minority, have otherwise interrupted more lucrative careers and so should be relatively well compensated for that.

And yes, the MSPs it would appear from the article contribute around 10% of their own monies into the pension scheme.

So on a par with many here I’m sure.

Perhaps you are in a defined contribution scheme, where your employer might contribute anything from 3-7%, or if lucky a bit more.

So the Scottish MSPs stick in 10% of their own cash and receive an eye watering 1/40th accrual final salary index linked pension.

How much do you think that costs to finance ?

Of course the employer contributions come from the Scottish Government……out of taxpayer contributed funds……

Hang onto your seats……

The employer contribution rate is an astonishing 75% of the MSP salary !!!!

The promised pension is massively expensive to fund, the MSPs make a very small contribution to the overall funding and the Scottish taxpayer picks up the tab for the rest.

[Alaric]

The author is a pensions expert and had been looking at the nitty gritty of the public sector pensions of Scottish Members of Parliament.

The scheme is incredibly generous - a 1/40th accrual final salary scheme - now I accept that the life of an MSP is an uncertain one and I hear the arguments that some of them, perhaps a small minority, have otherwise interrupted more lucrative careers and so should be relatively well compensated for that.

Isn't that the same as Westminster MPs used to have?

https://www.mypcpfpension.co.uk/cdn/gui ... -FS_v3.pdf
from which

Your benefits will build up at different levels depending on which rate you choose:
Standard rate: 13.75% of Pensionable Salary
While you are paying this rate, your benefits build up at 1/40th of Pensionable Salary for each year of membership.
Middle rate: 9.75% of Pensionable Salary
While you are paying this rate, your benefits build up at 1/50th of Pensionable Salary for each year of membership.
Lower rate: 7.75% of Pensionable Salary
While you are paying this rate, your benefits build up at 1/60th of Pensionable Salary for each year of membership.

[thebarns]

So current salary of Scottish MSP is £66.5K.

Say they contribute 10%, so £6.6K.

Be an MSP for 30 years (I fully get most of them will not do 30 years but this applies equally to the private sector person with numerous jobs and different defined contribution pots).

After 30 years, using today’s salary - I appreciate it will be on the final salary at the time - and they would get an index linked pension of £50K.

For putting in £6.6k a year for 30 years.

Plus of course the 75% from the employer, the frankly obscenely ridiculous amount all caused by overly generous pension terms, both in terms of payout and in terms of required member contributions, subsidised by gargantuan employer contributions.

To get a £50K index linked pension from an annuity would cost into 7 figures for someone looking to buy on the open market.

So the defined contribution individual on the same salary contributing £6.6k a year, plus tax relief, plus employer contribution of 3-7% for a fairly standard auto enrolled or similar such employer defined contribution scheme gets nowhere near that.

It’s the same with many of the public sector pensions - either reduce the end payouts as too generous and therefore too expensive for the employer to fund, or massively hike the employee contribution and reduce the employer contribution.

Although the Scottish MSP pension scheme is a particularly eye watering example of the cost and generosity of public sector pension schemes and is likely to be at the very top of the range of schemes that pay out generously with extreme levels of taxpayer funded employer contributions.

[DrFfybes]

Fools may have read about some controversial topics being discussed in the Scottish parliament recently, indeed some of these topics have been generating worldwide interest…….

[...]
So the Scottish MSPs stick in 10% of their own cash and receive an eye watering 1/40th accrual final salary index linked pension.

[...]

The employer contribution rate is an astonishing 75% of the MSP salary !!!!

The promised pension is massively expensive to fund, the MSPs make a very small contribution to the overall funding and the Scottish taxpayer picks up the tab for the rest.

I find that a little hard to believe. When we were outsourced from the Council, the new employer had to take on our pension commitments. At the time they were FS, no lump sum, on 60ths, and the employer contribution to the Peninsula Pesion scheme was circa 20% plus our 6%.
Under the current Career Average scheme, which accrues at 50ths with no lump sum, Employee pays 8% and employer 23.6%.

So quite where this massiive leap comes from is uncertain.

Put it another way, ignoring inflation, someone on £10kpa would pay in £40k over 40 years, plus another £300k from the employer producing a pot of £340k, plus investment returns. If returns outstripped inflation by 1% the pot would be £415k, by 2% the pot would be £515k, or £641k is returns were 3% above inflation.

That makes the £10k pension a pretty low drawdown rate. Who's running it, SJP?

Paul

[thebarns]

Baillie Gifford are the pension fund managers to the Scottish MSP scheme.

Of course stated employer contributions as per the scheme documentation don’t always tell the whole picture. And these can be the figures picked up by journalists.

John Ralfe pointed this out in his article about the Scottish MSP employer contributions which were 20 something, as if to pull the wool over the eyes of the laymanny reader.

Buried in the notes to the accounts are the true employer funding rates, which take into account all funding shortfalls ( and of course surpluses in the good times).

I am aware that the Scottish teacher public sector employer contributions had to be upped significantly, I think now high 20s, to effectively fund shortfalls from the past.

The public sector continue to strike about their salaries, willingly or just oblivious to the very high employer funded cost of their pensions - recurring annual costs plus one off contributions to fill holes from previous years. Give them their pay increases, but if their pensions were brought back towards the costs of their equivalent salaried person in the private sector, then the savings from the reduction in funding their pensions would significantly outweigh the costs of increasing their salaries.

Some of the graphs used attempting to demonstrate the real time fall in public sector salaries always neatly omit any genuine attempt to quantify the employer cost of their pensions.

[Lootman]

The public sector continue to strike about their salaries, willingly or just oblivious to the very high employer funded cost of their pensions - recurring annual costs plus one off contributions to fill holes from previous years. Give them their pay increases, but if their pensions were brought back towards the costs of their equivalent salaried person in the private sector, then the savings from the reduction in funding their pensions would significantly outweigh the costs of increasing their salaries.

Some of the graphs used attempting to demonstrate the real time fall in public sector salaries always neatly omit any genuine attempt to quantify the employer cost of their pensions.

Ultimately isn't it that the average Scottish voter just isn't as outraged as you are about this, and so it never changes?

I realise that things are almost as bad in England. But somehow it seems to me that the Scots collectively are sanguine about ever higher taxes. And with a higher percentage of workers employed by the public sector in Scotland, or otherwise in receipt of public funds, there is a critical mass of voters who want the ponzi scheme gravy train to continue?

I guess the good news is that by the time many of these politicians collect their pension, they may be handing over more than 50% of it right back in income tax?

[thebarns]

You raise valid points about the “average Scottish voter” Lootman.

We have the largest public sector per capita in the U.K. and I think, although I am only going on past recollections of articles previously read, one of the highest public sector per capita in Europe. Along with “leading” stats on drug deaths, poverty, life expectancy and alcoholism…..

And so yes, there are a lot on net takers rather than givers in terms of tax and welfare distribution.

The SNP although not a majority in Scotland take advantage of first past the post in their Westminster MPs, just as the Conservatives do in England.

And you are right, there is a critical mass of takers who will vote for them (and the promised land of independence) which ultimately leads to the higher taxes being voted through by the SNP and their strange identity politics alliance with the Green Party in Holyrood.

But their support is dwindling and Labour resurgence may prevent an SNP/Greens controlling majority at the next Holyrood election, so the direction of personal taxes might change course depending on which coalition is in power.

And the SNP are very opaque re Scottish Finances, consistently criticised by the independent Audit Scotland for lack of documentation or trail of various items of expenditure, massive Covid sums received from Westminster being particularly masked.

Hence they can get away with the pension scheme funding without too much media intervention up here.