SCOTLAND - A business body has lashed out at Scottish public sector pensions, claiming recent UK reforms have merely added to the burden of liabilities on the private sector.

Ron Hewitt, head of the Edinburgh Chamber of Commerce, has called on the Scottish government to abandon the defined benefit model for Scotland’s six main public sector pension schemes.

“The basic model - of defined benefit schemes paid for not out of investment, but out of current budgets - remains unchanged,” he said. “Therefore, the same problems are likely to re-merge over time.”

In a briefing note to be published this week, Hewitt claims the private sector’s inability to match public sector pensions potentially distorts the labour market. 

Moreover, private sector employees are effectively paying twice for pensions - once, directly, for their own, and twice, indirectly, for public sector pensions.

“We still have a situation where the private sector is liable for economic risk on behalf of public sector employees,” said Hewitt.

“This leaves in place the potential scenario where a downturn in pension returns places extra burdens on private sector taxpayers, adding to a vicious cycle of pressure on their own pension arrangements.”

According to the note, the fact public sector pensions are subject to political horse-trading has made reform more difficult, as “pressure is placed on government to keep public sector pensions as generous as possible regardless of the economic circumstances”.

A spokesman for the Edinburgh Chamber of Commerce pointed out that, despite promising to freeze senior civil service salaries, the Scottish government has kept the incremental element.

With public sector pension liabilities estimated in February at £78bn (€87.8bn), this year’s £9bn cost will account for 10% of the Scottish budget before any other public spending.

“Overall,” the note adds, “while increases in pension payments have broadly been sustained by higher government revenues in Scotland in recent years, it is likely that the budgetary restrictions on the Scottish and UK government will make the position more difficult going forward.”

In the meantime, the Edinburgh Chamber of Commerce is urging the Scottish government to recruit new employees on the basis of defined contribution pension provision.

“This is an opportunity for us to leapfrog to a position ahead of the game, gaining a competitive advantage over the rest of the UK,” said a draft version of the note.