Scottish independence: Yes vote ‘threat to pensions’
SCOTLAND faces a stark choice between higher tax or lower pensions if it votes for independence, a leading financial expert warns today.
Days after a leaked report revealed the Scottish Government is reviewing the affordability of a state pension under independence, a past president of the Institute and Faculty of Actuaries is arguing the odds “strongly favour” staying within the UK system.
Writing in Scotland on Sunday, Ronald Bowie, now a senior partner at actuaries firm Hymans Robertson, says that even if Scotland could afford to replicate the UK system post-independence, “the weight of numbers is difficult to overcome”.
Bowie says an ageing population, higher proportion of public service workers than the rest of the UK and predictions of dwindling oil revenues will leave an independent Scotland “at a disadvantage on several counts”.
Bowie writes: “The UK system is not perfect, nor is the system in any country, but it is built, it is sustainable and it has a broad spread population to support it.
“Even if Scotland could somehow afford to replicate the system being built in the UK, the weight of numbers is difficult to overcome.
“The result must surely then be that we would face either higher taxes, lower pensions or a cut in spending in other areas of our society. None of this seems like something that will be to the benefit of our country.”
Welfare and pension plans under an independent Scotland are due to be published by the Scottish Government in the next few months.
The government claims its own “detailed analysis shows state pensions in an independent Scotland will be more affordable than they are in the UK”.
However, Scottish Conservative finance spokesman Gavin Brown said: “The issue of pensions is critical given the demographics we will face, and the situation in Scotland is even more challenging than the UK as a whole.”
Bowie’s comments are supported by new research, which suggests an independent Scotland, could face a pensions crisis on three fronts, with the Scottish Government unable to pay a rapidly growing state pension bill, Scots being excluded from UK private pension funds and the loss of protection when companies fail.
Research from the House of Commons library has revealed that the burden on the taxpayer of funding pensions is set to be much higher in Scotland than the rest of the UK.
This comes as experts in the pension industry are warning that an independent Scotland may have to be jettisoned from private pension funds because EU rules mean that liabilities for cross-border funds have to be fully funded.
The EU directive requires all schemes located in Scotland accepting contributions from an employer located in the rest of the UK (or vice versa) to apply for authorisation as a cross-border scheme where liabilities would need to be fully funded at all times.
There are also concerns Scotland would no longer be covered by the Croydon-based Pensions Protection Fund, which has paid the pensions of retired workers from bankrupt companies.
When Waterford Crystal and Wedgewood went out of business in 2009, the PPF paid the pensions of former employees in the UK but did not help out the ones in Ireland. Instead when the company was wound-up Irish workers were offered payments representing 18 per cent to 30 per cent of entitlement. It means that an independent Scotland would probably have to set up its own PPF.
Labour pensions spokesman Gregg McClymont said: “It is simply not true to say we face the same pension challenges as the rest of the UK. Alex Salmond has been caught out again. Pensions is not an area where blind assertion will pass as good enough. It is widely known that Scotland is ageing faster than the rest of the UK and that will undoubtedly cause issues further down the road.”
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