This is as much a consequence of the economic times as of anything else. If this vote had been held ten years ago, pensions would have been a factor, but not a decisive one. Since then, however, we have had a financial crisis and a recession, which has played hell with pension provision.
A decade ago, people in the private sector paying into a pension fund – whether employed or self-employed – had little reason to worry, except over how much was being paid into the fund. The equation looked simple: the more you paid in, the more you got back when retirement came.
Just like house prices, which always seemed to go up, the value of pension funds always appeared to rise as well. Thanks to rising stock markets, commercial property returns and good corporate and government bond returns, even cautiously-invested funds prospered.
Returns were flowing into company pension funds so fast that firms didn’t need to pay anything in to keep them topped up. Economies were merrily growing, so the UK government and other governments whose pension payments to public sector workers are unfunded and are paid out of tax revenues did not have to worry that meeting these obligations might become a serious headache.
Then came the crash and all that is now a distant memory of a false golden retirement age. Last year, a self-employed contractor did some building work for me. He is a smart guy and runs a good business. He told me that his personal pension fund had once stood at about £150,000, but had halved in value.
His expected pay-outs, because investment returns have shrunk, have been affected even more, down from around £6,000 a year to perhaps £2,500 a year. And there are tens, perhaps hundreds, of thousands of people like him in Scotland whose hopes of a modestly comfortable life in retirement – not rich but certainly well above the poverty line – have disappeared.
Nationalists might argue that this shows how dreadful has been UK economic mismanagement, so Scots should vote to get out of the Union. This would be an idiotically pointless statement. The crash has hit the pensions of people right round the western world, whether they live in large, medium, or small countries. Moreover, I suspect that the key question for those people whose pensions are top of their independence concern list in considering whether or not to vote “Yes” is not whether things will be the same in an independent Scotland, but whether their pension prospects will be better. Only a positive response to that is likely to persuade them to vote “Yes”.
But the evidence, including the Treasury report published yesterday, is so far piling up on the “No” side. You might say that is because a lot of it is coming from the “No” camp. But, at the very least, it is pointing out all the problems that have to be overcome – and they look pretty big.
For example, the Treasury paper discusses the Pension Protection Fund. This protects holders of company-defined benefit pension schemes if the employer goes bust and there is not enough money in the fund to meet all the due payments to pensioners. The fund is now paying out to 360,000 UK pensioners, of which perhaps 25,000 are Scots.
The costs of this fund are partly met by a levy on solvent pension funds. The paper says, if an independent Scotland decided to set up its own fund, the costs would be spread over a smaller base (459 Scottish schemes versus 6,432 UK schemes). This means that if a big employer’s fund went bust, the levy costs are likely to be higher under independence and costs would ultimately fall on the pensioner.
The paper does point out that it is possible for the UK fund to be maintained and for Scotland to participate in it post-independence, as Luxembourg shares in Germany’s fund. But, it says, this is also subject to post-independence negotiation, ie it is not certain to be the case.
In any case, regardless of whether you think the Treasury paper is just unionist scaremongering, supporters of independence still have to contend with the problems being spotlighted by the industry itself and professionals who advise the industry.
Much of the Treasury analysis draws on a paper published by the non-aligned Institute of Chartered Accountants Scotland, which highlighted the problem thrown up by European Union rules. One is that single-nation private pension funds can be under-funded, but funds that serve pensioners in two or more EU member states cannot. This means that UK employers with pensioners either side of the Border will have to stump up to cover all their liabilities.
Good, you might say, so they should. But such is the extent of under-funding, the requirement might bankrupt some companies.
The Scottish Government argues that this cost can be spread over a transition period of several years. I tend to agree with it, that this and other cross-Border problems can be dealt with, and it would not be in the UK government’s interest to be petulant about it.
But there is still the inescapable point that nobody will know if this turns out to be the case until after independence.
And even if everything turns out all right on the negotiating night, there is still the matter that an independent Scotland will definitely have its own fiscal system, necessitating different tax and national insurance regimes.
This, said Donald Campbell, a principal consultant with Xafinity, a pensions consultancy, writing in Pensions Age magazine in February, “is going to be costly – in terms of time, management, and the necessity to implement new systems”. The benefits he saw as generating work for pension and tax consultants. There is no way of interpreting that other than as a cost that will fall on employers and pensioners.
We have yet to see a full prospectus for the future of pensions from the Scottish Government. But, right now, the pensions problems it has to solve look to be big and rather insuperable.