Meeting of the Commission [Draft]

Meeting date: Friday, January 15, 2021

Official Report 580KB pdf

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Spring Budget Revision 2020-21 (International Accounting Standard 19: Pension Costs)

Agenda item 3 is on Audit Scotland’s spring budget revision 2020-21 and how it relates to pension costs. Members have a copy of the budget revision in their papers, and we have the same witnesses that we had for the previous agenda item. Without any delay, I invite the chair of the board, Alan Alexander, and the Auditor General, Stephen Boyle, to make some introductory remarks.

As you will know, the issue of pension costs is one of those things that come up on an annual basis, and we have to deal with it for all kinds of legal and financial reasons. I must confess that my expertise in this area is limited. I am perfectly happy to give good governance to the way that it is done by Audit Scotland but, when it comes to the detail, I will hand over to Stephen Boyle and possibly also to Stuart Dennis, if that would be acceptable to the chair.

Absolutely.

11:00  

I will be very brief. It is always worth emphasising that, to some extent, non-cash costs are outwith our control, by virtue of Audit Scotland’s admission into the local government pension scheme, of which the vast majority of Audit Scotland’s people are members.

The spring budget revision request that is before the commission is for £3 million—that is, as I say, a non-cash item. That figure has come to us from the actuaries of the Lothian Pension Fund, which is the local government pension scheme of which we are members. The increase in costs is derived from the change in discount rate, which is one of the components that is assessed in the estimation of future liabilities. The reduction in the discount rate, in essence, increases the liabilities of the scheme and our associated share of that cost.

That is the background. Between us, we are happy to answer the commission’s questions.

I have two questions—the first is for Stephen Boyle and the second is for Alan Alexander. With regard to the Lothian Pension Fund, what preliminary discussions has Audit Scotland had with the Scottish Government to confirm that the previously agreed arrangements with Her Majesty’s Treasury remain in place to meet the pensions adjustment?

I will invite Stuart Dennis to provide an update on the history of those discussions and on the certainty. If I have understood correctly, I think that, in essence, the funding coming from the annually managed expenditure fund—the non-cash element of the Scottish budget—allows for such—[Inaudible.]—movements in circumstances. Stuart Dennis might be able to update the commission on the discussions.

Yes, I can provide an update. We have early discussions with the Scottish Government’s finance directorate about our non-cash AME funding requirement for the pension adjustment. As part of the process, the Government’s finance directorate has negotiations, which start in November each year, with HM Treasury to highlight the requirements in Scotland. It is not just Audit Scotland that has AME funding requirements; other bodies in the public sector in Scotland have them, too. Those discussions take place every year. We have liaised with the Scottish Government, so it is fully aware that our requirement for this year is £3 million non-cash funding.

Thank you for that answer.

I have a more general question for Alan Alexander. Has the board considered whether a local government pension scheme is the appropriate pension arrangement for a 21st century auditing organisation?

The best way to answer that is to say that the audit and remuneration committee and the board provide continuous scrutiny of, and challenge to, such issues. We have not considered that issue specifically—we are under no pressure from our staff to consider it—but we certainly would not rule out doing so. One has to keep the issue under review, but I am bound to say that I do not regard changing the arrangement as one of the most urgent things for us to do. However, the board now has the expertise that would allow it to give very good consideration of such an issue. The two new independent board members have different kinds of experience that are directly relevant to that issue. We will keep the matter under review and keep the commission informed of any changes to our view.

Thank you for that. I presume that the new board members will be listening to this.

We talk about non-cash items, of which it is quite easy to be slightly dismissive. However, they still affect your organisation. I will leave that thought with you.

Do members have any other questions on that particular point for the witnesses? I see that they do not.