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Malcolm McLean: Pensions under Scottish independence

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Although I have a Scottish name and can claim a longstanding Scottish ancestry, as I live in England I do not have a right to vote in the independence referendum to be held in Scotland on 18 September.

If I did have such a right, while not ruling it out, I would almost certainly want a lot more information about the implications of a ‘yes’ vote than currently appears to be available.

When it comes to pensions, both sides of the argument are unclear about what independence means for the retirement prospects of millions of people both in the short term and in the decades to come.

In relation to the state pension, I rather like the idea (assuming it is affordable) of Scotland having a higher single-tier pension of at least £160 a week in 2016, providing more of a buffer with means-tested benefits than the £155 envisaged for the rest of the UK. Commitments to the triple lock for the single-tier pension and possibly freezing later state pension age rises are also welcome.

But other, more basic, questions such as how and where National Insurance contributions will be collated and accounted for in an independent Scotland and who will actually pay the state pension have not been answered.

If existing pensioners are to continue to receive their pensions from the UK side of the operations and Scotland does not secure access to the EU, will annual increases still be paid or will they be treated as being in a foreign country – as with Canada and Australia – and have their pensions frozen? 

For private pensions, there needs to be an agreement between the Scottish and UK governments as to the exact share of pension liabilities to be taken on by the Scottish government, which has repeatedly said no accrued pension rights will be lost. This means there has to be Scottish versions of the Pensions Protection Fund, The Pensions Regulator and, presumably, Nest.

How that will work and what problems it may yet throw up are unclear.

Cross-border pension schemes

The potential problem of cross-border pension schemes cannot be ignored. 

Schemes with members in Scotland could become ‘cross-border’ and under EU law would need to be fully funded at all times, leading to the possible closure of more defined benefit schemes. How will this  be addressed?

While accepting that not every operational and legacy issue can be resolved in advance of the referendum there are a number of areas of uncertainty in the pensions arena, which should have been bottomed out more fully by now.  

The Scottish people will have to decide whether to vote with their hearts or their heads on 18 September. Whichever way they go let us hope they are proved right both in their own interests and for that of the rest of the UK as well.

Malcolm McLean is senior consultant Barnett Waddingham 

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