Background

1. The Scottish Parliamentary Contributory Pension Fund (SPCPF) was set up from 6 May 1999 under transitional provisions of the Scotland Act 1998. The SPCPF provides for the payment of pensions to former Members and Office Holders of the Scottish Parliament who attain 65 years of age and, subject to certain conditions, to the widows, widowers and children of deceased pensioner Members and Office Holders.

2. The Pension (Increase) Act 1971 and Section 59 of the Social Security Pensions Act 1975 (as amended) are applicable to pensions paid from the SPCPF.

3. The legislation that governs the SPCPF is The Scotland Act 1998 (Transitory and Transitional Provisions) (Scottish Parliamentary Pension Scheme) Order 1999 (S.I. 1999 No.1082) (“the 1999 Order”).

Management of Fund

4. The Scottish Parliamentary Corporate Body (SPCB) are the managers of the SPCPF. The members of the Corporate Body, appointed following votes in the Scottish Parliament, were:

	Appointed
George Reid MSP	07-May-2003
Robert Brown MSP*	19-May-1999
Duncan McNeil MSP	20-Dec-2001
Nora Radcliffe MSP*	30-Jun-2005
John Scott MSP	21-May-2003
Andrew Welsh MSP	19-May-1999

* Robert Brown MSP resigned from the SPCB on 28 June 2005 and was replaced by Nora Radcliffe MSP.

Other parties appointed in connection with the SPCPF

5. The following professional parties are appointed in connection with the SPCPF:

Responsibility	Name	Appointed by
Actuarial advice	Government Actuary	Schedule 1, 1999 Order
External auditor of annual accounts	Audit Scotland	Schedule 1, 1999 Order
Investment Management	Baillie Gifford	SPCB
Bankers	Bank of Scotland	SPCB
Scheme Administrator	Scottish Public Pensions Agency	SPCB
Legal Advice	Legal Advisor to the SPCB	SPCB

The Managers have also appointed officials from the Scottish Parliament, Personnel Office as their Secretariat.

Preparation of annual accounts

6. The SPCPF is a public service pension scheme and as such exempt from the majority of the requirements of the 1995 Pensions Act including those relating to accounts. However, the accounts have been prepared, as far as appropriate, in accordance with the Statement of Recommended Practice, Financial Reports of Pension Schemes issued in 2002, in order to conform to best practice reporting requirements. A statement of the Managers’ responsibilities with regard to the preparation of the accounts is on page 8.

Benefits payable

7. The main provisions of the scheme are:

• an immediate pension of one fiftieth of final salary for each year of service on retirement at age 65;
• an immediate pension before retirement age subject to certain service restrictions;
• an immediate pension on retirement at any time on the grounds of ill health;
• an abated pension paid on retirement at any time on attainment of age 50 and completion of not less than 15 years service;
• an actuarially reduced pension paid to most former Members at any time after age 50;
• a five eighths widow/ers pension;
• childrens’ pensions (at the rate of one quarter of the basic or prospective pension of the Member if there is one child or three eighths if there are two or more children);
• a lump sum death gratuity on death in service equal to three years salary with provision for more than one nominee;
• the purchase of added years;
• transfer of pension rights (into and out of the scheme);
• the opportunity to contribute to an Additional Voluntary Contribution (AVC) scheme with an outside provider.

Scheme Membership

8. As at 31 March 2005 the SPCPF had 130 members, as per the previous year. Movement in membership was 27 new members and 27 leavers during the year. There were 8 beneficiaries receiving pensions from the SPCPF as at 31 March 2005 and 21 members with preserved pensions.

Income

9. Income to the SPCPF is derived from two main sources (a) contributions from Members of the Scottish Parliament and holders of qualifying office under article C2 (3) of the 1999 Order (SI 1999 No. 1082) and (b) contributions from the Scottish Consolidated Fund paid under the terms of article D3 of the 1999 Order. Investment income earned within the Baillie Gifford Fund is reinvested and will increase the value of the units held.

In addition, transfers of pension benefits into the SPCPF amounted to £166,474 in 2004-05 (£5,007 in 2003-2004).

10. Members and qualifying office-holders contribute 6% of their salaries to the SPCPF. This rate has been in effect since 7 May 1999. Pensions in respect of the offices of First Minister and Presiding Officer are paid from the Scottish Consolidated Fund but the holders of these offices contribute to the Pension Fund in respect of their MSP salaries. The contribution from the Scottish Consolidated Fund was set at 17.1% of salaries of members and office holders from 7 May 1999, but following the first full valuation of the SPCPF by the Government Actuary as at 31 March 2002 this contribution was increased to 18.5% on 1 April 2003.

Investment details and performance

11. The Pensions Act 1995, Section 35, requires that the Trustees of pension funds prepare and maintain a ‘Statement of Investment Principles’. Whilst the SPCPF is statutorily exempt from this requirement, the Managers have produced such a document through a desire to comply with best practice for funded schemes. A copy of this is available on request.

12. The statement includes a policy on investment and explains that as this is a relatively new scheme contributions are likely to exceed benefits for many years. Accordingly, it should not be necessary to sell assets to pay benefits in the medium term, this enables the investment strategy to be predominantly equity based increasing the probability of a higher investment return on the fund’s assets over the long term. The risk of this type of investment has been considered. The initial size of the scheme’s assets are not sufficient to allow a widely diverse portfolio and therefore it was decided to invest with a single pooled fund run by an independent management company.

13. The Managers delegated responsibility for the investment management of the SPCPF entirely to Baillie Gifford. Custody of the investments, the receipt of income and the recovery of tax remain the responsibility of the Managers.

14. The 1999 Order requires the Managers of the Fund to review any acquisition or disposal of the assets of the Fund within six months of such acquisition or disposal. Initially, until the size of the Fund has become sufficiently large to allow investment directly into bonds, stocks and shares, the Managers have decided to direct investment into a single pooled fund, the Baillie Gifford Managed Pension Fund. Baillie Gifford’s charge for investment management is 0.45% per annum of the value of the Fund accrued on a daily basis. Baillie Gifford is required to manage the Fund’s assets within the parameters set by the Statement of Investment Principles and report the performance of the Fund on a regular basis.

15. Investing in the Baillie Gifford Managed Pension Fund began on 4 August 1999. In the period 1 April 2004 to 31 March 2005 £1,790,599 was invested. This compares with £1,546,000 invested in the period 1 April 2003 to 31 March 2004. At 31 March 2005 the market value of the units held within the Fund was £10,360,888 (£7,598,986 on 31 March 2004). The value of the units were £2.86 at 31 March 2002, £2.29 at 31 March 2003, £2.86 at 31 March 2004 and £3.17 at 31 March 2005.

Actuarial position of the Fund

16. The Government Actuary was required to produce an initial actuarial valuation of the assets and liabilities of the SPCPF as at 6 May 1999 and thereafter to conduct a full valuation at three yearly intervals. The first of these triennial valuations was produced on 11 April 2003 covering the period 6 May 1999 to 31 March 2002. It found that at the valuation date the value of the assets of the SPCPF fell short of the value of the liabilities by £0.59 million. The valuation recommended that this deficit be met by additional contributions from the Scottish Consolidated Fund of 1% of pay. The valuation also revised the Standard Contribution rate of the scheme from 17.1% to 17.5% and, therefore, recommended that the total contribution payable from the Scottish Consolidated Fund should be at the rate of 18.5% of pensionable payroll payable.

17. A Report of the Actuary for the period 1 April 2004 to 31 March 2005 can be found at pages 6 to 7 of this Account.

Contact address

18. Further information and scheme documentation about the Scottish Parliamentary Contributory Pension Fund, including members’ own positions, can be obtained from The Scottish Parliament, Personnel Office, Edinburgh, EH99 1SP.

Approved on behalf of the Scottish Parliamentary Corporate Body as Managers of the Scottish Parliamentary Contributory Pension Fund.