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Lothian Pension Fund – Update

For the attention of members of the Lothian Pension Fund (Local Government Pension Scheme)cash

UNISON has recently had a number of enquiries from members about reported changes to their workplace pensions. Here, I try to explain a little about what has been happening in your pension fund in the last few months.  I am one of the UNISON representatives with a seat on the pension board for Lothian. The board has oversight of the pension committee and the pension fund. The pension committee is a sub-committee of the City of Edinburgh Council and is made up of local councillors and two non-councillor members. The committee manages the fund on your behalf and makes all major decisions that affect your pension. The pension fund manages the day-to-day administration of your pension, as well as how all the pension contributions are invested.

On Wednesday 20th March the Pension Committee of Lothian Pension Fund decided to reduce the rate of contributions for the vast majority of member employers for the next three years. The rate varies depending on the employer, but in the case of local government employers, the new rate has been set at 17.6% of employee’s salary. In the example case of City of Edinburgh, Midlothian and East Lothian Councils, the previous rate was 24.3%.

Previous changes to the rate for local authorities was tied to +/- 0.5% previously (Known as the Contribution Stability Mechanism – CSM). This allowed the fund to make small adjustments to contribution rates depending on how the investments were performing compared to liabilities owing (Mostly how much our pensions are due to cost in the future). The fund recommended suspending the CSM so that they could recommend a much greater reduction, as a result of much better-than-expected financial investment performance. The pension fund was estimated to be worth 106% in 2020 (The last valuation date). The fund is now estimated to be worth 157%. For a fund with approximately £10bn in assets, this is clearly a significant sum of money.

As one of your representatives on the Lothian Pension Fund’s statutory board, I have been part of discussions around what all these numbers mean. It is quite a complicated matter, and for those that want some bedtime reading, can read the report by the fund’s actuary here (Item 6.4 on the agenda): https://democracy.edinburgh.gov.uk/ieListDocuments.aspx?CId=137&MId=6834&Ver=4

The fund had previously presented all the options to the committee and board, and explored what the implications would be. One scenario was to reduce all employer contributions to 0%, which would still allow the fund to fully meet its liabilities within the next 20 years. Please note that this was only ever illustrative! But it does show how buoyant the fund currently is. I did raise concerns over suspending the CSM, given that it was introduced for a reason. There were also concerns raised from Councillors on the committee as to whether all the worst-case scenarios had been explored, such as a catastrophic climate event (Or a worldwide pandemic!). The fund has assured us that it has taken all reasonable scenarios into account and can set a contribution rate of 17.6% and achieve an 80% confidence level of achieving this in the long-term. This is an increase from the 67% confidence level previously set. The fund has taken steps to ensure that a greater share of its investments is in less risky investment categories in order to achieve this over the long term.

As members will well know, we have had to fight for our pensions, having taken industrial action twice over the last twenty years in the face of government attacks. Many members will remember the Conservatives and Liberal Democrats speaking of our expensive ‘gold-plated’ pensions when the reality is an average annual pension in retirement of £4000 (At 2010 prices). So, it is always worth remembering that while we were told our pensions were unaffordable, as they have now become very affordable for employers, perhaps it will soon become time to ask for restoration of our previously ‘unaffordable’ pension benefits!

For now, I am largely comfortable that employers’ rates are brought back down to a level they were last at some decades ago (Roughly 3 times the amount that employees pay in). They are affordable, and sustainable for the future. They are also not, as I am told have been reported elsewhere, a ‘pensions holiday,’ but rather a greater-than-usual reduction in rates. Should the pensions be performing as well in three years’ time, at the next actuarial valuation, which may well be the time for us to be asking the Scottish Government for some of our pensions back!

Tom Howorth, UNISON rep on Lothian Pension Fund

tom.howorth@unison-edinburgh.org.uk, 0131 558 7488