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 Fund Expenditure
Table 6.1 shows the expenditure for local government pension schemes in 2019-20 – these expenditure figures represent payments of previously accrued pension rights. Total expenditure on pension scheme funds in 2019-20 was £1,545 million, an increase of 5.8 per cent, or £85 million, from £1,460 million in 2018-19.
|Lump Sums 2||367|
|Other Benefits 2||-|
|Payments under Pensions (Increase) Acts 2||254|
|Transfer Values 3||40|
Source: LFR 24
1 A detailed breakdown of Pension Fund Expenditure between 2015-16 and 2019-20 is provided in Table 6.1a in the 'SLGFS 2019-20 - Publication Tables' Excel file.
2 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.
3 'Transfer Values' relates to scheme members transferring to other pension schemes, for example where a scheme member has moved employer. In 2019-20, this figure also includes the net transfer value of Strathclyde Transport Fund Assets from Glasgow City Council to Aberdeen City Council.
4 'Other' includes fund administration and management costs; refunds of contributions; adjustments; and premiums. Fund administration and management costs are the largest component of this.
Just over half of expenditure, 55.9 per cent or £863 million, is on pensions, and lump sums account for just under a quarter of expenditure, 23.7 per cent or £367 million. Non-benefit related expenditure only accounted for 3.9 per cent, or £61 million, of total expenditure on pension schemes in 2019-20.
Chart 6.1 shows the changes in expenditure on pensions between 2015-16 and 2019-20. Pension fund expenditure has increased by 25.1 per cent over this time period. This increase has largely been driven by increases in expenditure on pensions which has increased by 23.2 per cent, or £210 million, since 2015-16.
Source: LFR 24
6.2 Pension Fund Income
Pension fund income is made up of two key components: employee and employer contributions; and income from investments. Table 6.2 shows the income for local government pension schemes in 2019-20 for each of these components.
|Employees Contributions 1||326|
|Employers Contributions 1||1,116|
|Net Investments and Other Income||-2,046|
Source: LFR 24
1 This includes contributions from other employing authorities.
Income from contributions from employees and employers represent payments for pensionable service accrued during the year which will be paid out as part of an overall pension at a future date. In 2019-20, total contributions provided £1,442 million of income, an increase of 6.7 per cent, from £1,351 million in 2018-19.
Contributions income is dependent on the number of contributing employees, both full time and part time, and 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 is volatile, as shown in Chart 6.2, and is heavily influenced by investment conditions, for example changes in the stock market. In 2019-20, net investment and other income was -£2,046 million, a decrease of £5,143 million from 2018-19. This negative income figure reflects the decrease in the market value of pension investments across all local authorities as a result of the impact of the Covid-19 pandemic on the financial market at the start of 2020.
Source: LFR 24