As one of the largest pension schemes in the UK, if not Europe, the Scottish Public Pensions Agency (SPPA) administers and regulates pensions arrangements for thousands of public sector workers in Scotland. As an agency of the Scottish Executive, its core areas focus on its two largest pension schemes, those run for the National Health Service (NHS) in Scotland and Scottish Teachers. In addition, the agency runs a number of smaller public sector schemes. In terms of scheme membership, the figures are formidable. As Ralph Garden, CEO of the SPPA says, when you account for deferred members and pensioners, you’re looking at a good 10% of the Scottish adult population.
The smaller schemes run by the agency, cover the Legal Aid Board for Scotland; the Scottish Agricultural Colleges and the Scottish Parliamentary Pension Scheme. The SPPA also regulates all other public sector schemes in Scotland, with police and fire being the principle ones, where theoretically Scottish ministers have responsibility, but in practice it comes down to local government being responsible for the day-to-day management.
There is “little rhyme or reason” why schemes such as the Legal Aid Board or the Scottish Agricultural Colleges have made the final cut as opposed to 30 others which could be, but are not run by the SPPA, says Garden who took up his position in 1998.
It is a legacy of pre-Scottish devolution, when the SPPA was then the Scottish Office Pensions Agency, which was created in 1993. To Garden’s mind, the way in which the different jurisdictions were put together was somewhat haphazard. “The bits running health were part of the health department; the bits running education were part of the education department and they had their own tag – the Legal Aid Board is a clone of the NHS for no apparent reason.”
He refers to the political drive to create ‘agencies’ which happened in the late 1980s and 1990s. These testified to a major ‘Thatcherite’ policy shift from government departments operating units, in a move to try and separate policy and implementation. The SPPA now functions as part of the Scottish Executive Education Department.
Eligibility for scheme membership is very general. The compulsory aspect to occupational scheme membership was “stupidly” thrown out by the Conservative government in 1988, as a way of encouraging people to take out personal pensions. Both schemes are therefore, in principle opt-out, says Garden. “There are very few limitations on people as to who can be in.”
With around 66,000 active members, scheme take-up amongst Scottish teachers is extremely high. Although there is a lack of good statistics, Garden believes membership to be close to 100%. “There may be some bits in further education colleges and short term lecturers where it’s significantly not. But our impression is teachers have very high uptake.”
Historically, he says, scheme membership amongst teachers has not really grown, remaining “rather flat”. He believes this is reflective of something close to 100% take-up, coupled with the fact that there have not been any significant changes in the number of teachers over the years.
By comparison, the NHS scheme has seen much lower uptake with around 110,000 members out of 150,000 employees. This points to the huge changes that the NHS has gone through over the years, says Garden. Numbers fell significantly when compulsion was scrapped and has slowly built back up over the years to original levels, excluding from these figures a new category, when the staffs of general practitioners were let in, in 1997. He acknowledges the fact that there are probably correlations between low pay and not being in a pension scheme and can appreciate the position of those in the NHS. With low pay in part-time work, “I’d rather have the 6% to spend than put it in a pension scheme.”
The NHS scheme in addition to its 110,000 active members, has 70,000 deferred pensioners and 70,000 retired members. In the teacher’s scheme, on top of its 66,000 active members, there are over 40,000 deferred and 42,000 retired.
Both schemes are run on a pay-as-you-go basis and are contributory; working on the assumption that the employee pays 6%; excluding manual workers within the NHS who pay 5%, a very small part of the total. Essentially, says Garden, the SPPA uses notional funds in order to calculate employer contributions where in this case the government fulfils the ‘employer’ role. The SPPA collects all contributions except for the ‘baby’ schemes. Each year, it pays out around £800m (E1.3bn) in benefits and collects about £500m (E795m) in contributions with the rest coming from taxation.
As statutory schemes, there is no trust structure. “There are in principle rules, but we have virtually no discretions, which is useful in one sense because it’s quite difficult to have discretions held politically,” says Garden. The primary objective of the 200 staff who work at the SPPA is collection and distribution, in conjunction with the more conventional, administrative aspects of running a pension scheme.
All administrative operations are in-house except for the payment of NHS pensions. Responsibility for this lies with Paymaster, the third party pensions administrator which secured its 14 year NHS pensions contract at the end of last year. He views it as another example of the separating out of administrative functions that seems entirely arbitrary with no “conceivable reasoning” behind it.
All the schemes run by SPPA are defined benefit. Although Garden says that there is a limited amount of work going into where the SPPA should be in the future, “there is really not much serious thought about changing from defined benefit”. With reference to the funding element which was brought in earlier this year in the Principal Civil Service Pensions Scheme (PCSPS) run out of Westminster, he says of any attempt to do something similar with the Scottish scheme, “it’d be hugely controversial, hugely unwelcome to the membership, essentially with the publicity and everything that’s going on with defined benefit schemes switching”.
With the population ageing, he has noticed a demographic pattern emerging amongst his own scheme members. Scottish teachers have the most noticeable age demographic with a “bulge” in the 45–55 year age bracket, as teachers push 50; but the NHS demographic looks much flatter.
Looking further down the line, it is difficult to predict how the ageing demographic will impact on contributions, comments Garden. “It is a long slow process. One of the great advantages with unfunded schemes with notional funds is that you don’t have stock exchange pressures. The main effect of the slow-acting demography at the moment, and it’s principally the longevity element rather then the age distribution bulge coming through, is to gently push up the_cost and slowly and gradually raise employer contributions.”
The SPPA’s offices have recently moved from Edinburgh, although it retains a small office there, to Galashiels. The move reflected the fact that it was not necessary to remain within “spitting distance” of the Scottish Parliament, says Garden. In moving to the Borders, he has found it possible to recruit a high standard of staff, “probably better than Edinburgh”.
Around 30 staff have moved with the agency and another 30 have stayed on in Edinburgh as a support group. The timescale for completion is 18 months. As Garden comments, in terms of employment, the SPPA is just the right size to make a critical different on the Galashiels area.

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