Saving Money

The defined benefit  pension should be closed, as the amount of money that is paid into the Council pension scheme cannot be sustained.  

If the DB pension is continued, then the amount that that the Council pays should be reduced substantially and the deficit should be paid by the employees i.e. reduce the Councils 18 - 20% pension contribution down to a maximum of 12% and the employees increase their contributions for 5-6% to 12 - 14% contributions. This will increase the amount the council will have to spend and after all, it is the employees get the benefit of the pension.

If the DB is closed and changed to a Defined Contribution then it will not only reduce further liabilities that will accruing for future generations of taxpayers, but will allow a more flexible workforce, as employees who would like to leave SBC but cannot afford to due to the amount of years of pension, would be able to leave and carry their pension pot with them.  As someone who has worked in the Public Sector as well as the private sector, the amount of colleagues who worked in the Public Sector who wanted to leave but could not afford to due to the amount of years that they had in the DB pension scheme meant that their productivity was lower than others.  If they could take their pension, they would have left, leaving openings to new people who have the drive and passion to take department forward.

I am unsure how your recruitment works, but if it is like other other councils where there is no trial period, then one should be in place.  This means that the council can remove new staff members who do not make the grade much easier.

Why the contribution is important

It is important as it will save the council millions of pounds over the long run, reduce future tax liabilities and make the workforce more flexible.

The amount of money saved can be used to in frontline services.

by Blueskythinking on November 20, 2017 at 06:59PM

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Comments

  • Posted by Borderer November 20, 2017 at 21:47

    The SBC pension scheme is well in profit and provides a good return on the money invested.
    This money goes back into the Borders.
    The pension is classed as deferred wages, so any changes would have to be reflected in salaries and given that the Scottish Borders has the lowest wages in Scotland, this idea would cost more money than keeping the current arrangements.
  • Posted by Blueskythinking November 21, 2017 at 00:00

    I am not saying that the SBC scheme is in deficit. The only reason that the SBC pension scheme is in surplus is that the amount of pension contributions that are paid by the SBC (which comes from general taxation ie members of the general public who are not members of the SBC scheme) and at the end of the day, if there is a shortfall in the SBC scheme, then the shortfall will be made up from taxpayers money.

    You state that the money goes back into the Borders (I assume you mean former SBC workers who are in receipt of a SBC pension), but if they move out of the Borders or spend their money outside the Borders then the money does not go back into the Borders.

    If employees in the private sector want to have a larger pension when they retire (who are nearly all in DC schemes) then they need to make personal sacrifices to increase their pension contributions without asking their employer for larger pay rises, so can SBC employees make the same sacrifice without asking for larger pay rise?

    All I am saying is that if the SBC does not want to close their DB scheme, then SBC should looking at reducing the amount of pension contributions they make on behalf of the employees and the SBC employees increase their pension contributions (without the employees demanding large pay rises), allowing SBC to have more available funds.

    By reducing the SBC contribution by 6% and increasing the employees pension contributions from 6% to 12%, it will cost the employee an extra £6 (gross) (£4.80 net if a basic rate taxpayer) per £100, but will increase the funds available for SBC for frontline services, which is what the general public want.

    Using the above change, the same amount of pension contributions are still being made, but more is being paid by the employees, who, at the end of the day, will benefit from the DB scheme.

    If SBC change to DC system, then employees are still be getting deferred wages (as SBC will be paying into the DC pension scheme), but overall cost the SBC will reduce as once the employee has retired, then the retiree will have a pension pot to live on (if they want to start taking a pension) without the need for SBC (ie the taxpayer) to keep funding a retired employee pension long after that employee has left SBC.

     
  • Posted by Geejay November 22, 2017 at 20:21

    This is neoliberal thinking, part of the ongoing project to shrink the State and move the burdens from companies & government onto individuals. DC schemes are less generous, cost the employee more and shift the risk onto the workers as they are invested in the stock market. Public Sector workers work for the public, who in return support their incomes, which tend to be on the low side in general, and support their pensions where necessary. DC schemes are a time bomb which will result in much poorer pensioners.
  • Posted by Borderer November 23, 2017 at 05:52

    Surely the surplus is created by the investing of the pot, not by top ups from SBC.
    The other thing to bear in mind is that the SBC scheme is also used by other organisations, it is not only a council pension scheme.
  • Posted by Blueskythinking November 23, 2017 at 14:31

    The reason for the dearth (and death) of DB schemes in the private sector is due to the policies of both the Conservative and Labour parties had implemented over the years.

    Due to these policy changes, the DB schemes have become too expensive for private businesses to run and therefore the majority have now closed. The only DB schemes that are running are mainly in the public sector, as at the end of the day, any shortfalls will be covered by the taxpayer. Due to the expense of running a DB scheme, it was of the one of the main reasons that public sector pensions changed from finally salary to career average.

    As the majority of DB schemes have shut, this has led to an increase of DC schemes, which although cheaper to run than DB schemes, are less generous than DB schemes and that the liability for any shortfall pension provision has moved from the employer to the employee.

    There are two types of Public Sector, funded and unfunded schemes. Unfunded schemes are mainly NHS, Civil Service etc, which pay pensions from direct taxation and contributions made by employees working in their respective occupations.

    Funded schemes, which the SBC scheme is, rely on the stock market and other investments to generate income to pay ex-SBC employee’s pensions. If the SBC scheme cannot generate enough income to cover the pension provisions and they are no surpluses to fall back on, then SBC has to step in to make up any shortfall, either by diverting funds elsewhere from its budget, increasing council tax, asking the Scottish Government for more money or a mixture of all three. If the SBC pension scheme uses similar calculations as other Public Sector pension schemes (I’m unsure of how SBC pension trustees calculate any pension increases), due to the September inflation rate, SBC pensions paid may increase to around 4% come April 2018.

    In regards to Public Sector wages, ‘experts’ (I always take their findings with a pinch of salt) state that Public Sector wages were ahead of Private Sector wages (on a like for like basis) and that it is only recently that Private Sector wages have caught up with Public Sector wages.

    I can quite agree that this may be the case in the Scottish Borders where there is a large amount of agriculture employment and lower private sector wages, unlike say Edinburgh. If this is the case, then SBC employers are not paid proportionately lower than other private sector workers working in the Scottish Borders region.

    The average employer pension contribution paid by SBC to the DB pension scheme (which does covers other pension schemes) is around 18%. By reducing this to around 12%, it will allow SBC to have around £4m to use in frontline services instead of paying into the pension scheme, without too much of an increase in employees pension contributions.

    If SBC change to a DC scheme, keeping the same SBC contribution and with the employee’s pension contribution, the employee’s pension contribution will be around 24% of the employee’s salary, which is a lot more than the majority of private sector workers (on average they pay around 6 to 9% of their salary in a pension scheme, which is far too low to retire on).

    One of main differences between a SBC DB scheme and a SBC DC scheme is that the pensions on a DB scheme have a guaranteed level of income, even though both rely on stock market investments to generate income.

    The other difference is the amount DB pensioner receives compared to a DC pensioner. If a DB pensioner as a £1m pension pot, then that pensioner will receive a pension of £50k per year (assuming that the pensioner does not take a 25% lump sum) where as a DC pensioner also has a £1m pension pot, that pensioner would only receive a pension of around £35K per year for similar benefits as a DB pensioner would get (again if the DC pensioner does not take a 25% lump sum). As you can see, there is a marked difference in pension payments.

    I am not advocating the SBC pension should be scrapped and that SBC employees should fend for themselves for their pensions, what I am advocating is that the SBC has only a finite amount of resources available and how best to use them. Perhaps you can make suggestions on how best SBC can use the money that they have been provided?

    Unfortunately, SBC will not entertain this idea as will upset their employees and the unions, which I would expect would lead to some type of industrial action by the SBC employees which would affect everyone in the Scottish Borders.
  • Posted by RobinMcHood November 26, 2017 at 22:56

    While I understand where Blueskythinking is coming from he forgets that the majority of SBC employees are not well paid. They provide essential services we all need and would have great problems doing without. This has long been the case and the implied contract has always been that although council employees receive low wages this is offset by security of employment and a decent pension. Breaking this implied contract serves to benefit no one.
    I doubt very much that there are hordes of SBC employees desperate to leave their jobs but unable to do so because of their earned pension entitlements
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