Rachel Holmes: Pension warnings just scare tactics

DIRE warnings of the risk to pensions if we go it alone are nothing more than baseless scare tactics, writes Rachel Holmes

The 'No' camp have resorted to scare tactics on pensions, writes Rachel Holmes. Picture: TSPL

The Yes campaign says that Scotland can afford to pay for its own pensions. The No campaign targets areas where people feel vulnerable. “No” plays to human instinct and fear – change is risky – even if it is for the better. “Your pension is at risk,” they say. For those with little or no private pension the UK state pension – limited compared to other countries’ standards – is a lifeline. Unsupported threats of risk to their pensions are both cynical and cruel.

YES POSITION, AT A GLANCE

• State pension rights protected and paid as now

• “Social protection” is more affordable here –requiring a smaller proportion of tax revenues than for the UK

• State pensions will grow by at least 2.5 per cent annually, and always keep up with rising living costs.

• We can cancel Westminster plans to move quickly to a pension age of 67

• We’ll stop the abolition of savings credit for new pensioners on lower incomes

• Private pensions protected and regulated as now

• Accrued public sector rights protected, and policy decided through engagement and consultation with staff.

Claims of state pensions being at risk if we vote for policy decisions to be made in Scotland rather than England can be easily disproved. The threat can only be based on the idea that Scotland needs finance from the rest of the UK to sustain its current pensions. The No claim boils down to Scotland being in the red and needing subsidy from elsewhere in order to maintain current pension provision. The UK party leaders have agreed that Scotland has what it takes to be a successful independent country. Yet, in the same breath they say pensions are at risk if we vote Yes. It is doublespeak, designed to make us fearful. Scotland either pays its way or it does not. So, which is it? No can’t have it both ways.

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Paying National Insurance contributions (NICs) during your working life entitles you, under current UK rules, to a state pension, but the pension itself is not funded by your own NICs. Rather, your pension is funded by the taxes paid by working people.

The question therefore is whether the tax and other revenues of Scotland are sufficient to pay pensions, at least at the rate they are at now, of those living in Scotland without compromising other spending budgets. The figures support Scotland’s ability to do so. Scotland has paid more per person in taxes every year for the last 30 years than the rest of the UK. The Institute of Fiscal Studies states that, ignoring North Sea oil and gas, “Scottish tax revenues per head are almost the same as the UK average”. Scotland is a net contributor to the UK and government figures (GERS 2014) show Scotland spends less of its total revenue on pensions compared with the UK average. Expenditure on social protection, including pensions, is a lower percentage of Scotland’s output than the UK average.

Politicians and governments on all sides will make claims about pensions. But they have no case to say that the level of state pension, currently set by Westminster, is threatened by decisions about our revenues being made in Edinburgh rather than London. Whatever party you prefer to vote for and whatever claims they make about your state pension after independence, the figures show that Scotland can sustain, and if it wanted to, without spending on nuclear weapons and such like, have the potential to increase the pensions we already have.

Pensions already accrued under a UK government are to be respected after a Yes vote. Steve Webb, the UK coalition government pensions minister, confirmed that those who had accumulated rights to UK pensions would be entitled to their pension after independence. He made the analogy of a Scottish person who “works all their life and then retires to France… they still have an accumulated pension right in respect of the National Insurance they paid when they were part of the United Kingdom.” He also stated that “citizenship” is irrelevant.

Scotland’s projected ageing population has been raised as a problem. It is a challenge for most European countries and has been acknowledged by the Scottish Government. An adequate response is one that does something about this. We need targeted policy to keep young workers in Scotland and to attract new young workers to come here. We need the powers to do something about the issue rather than sitting back and trusting Westminster, with its other priorities and pressures in the south-east, as the situation gets worse. A fair and sensible immigration policy, targeting talented young workers, would help, as would economic policies designed to encourage existing young workers to actually stay in Scotland. We have net migration out of Scotland in this group. We might well ask why. The status quo offers no change to policy making in these areas. Full powers for the Scottish Parliament do.

Private pensions remain a contractual matter between individuals and their chosen pension fund provider. Long established contract law will always continue to form the basis of these agreements.

Regulation, as far as the current Scottish Government proposals are concerned, will be aligned with UK regulation and protection provisions maintained. In terms of EU requirements for full funding of the few remaining defined benefit schemes, the EU has allowed funds to work towards full funding via transitional agreements and it is most likely that this would apply to “new” cross-border funds. Kevin Le Grand, head of pensions policy at Buck Consultants and past president of the Society of Pensions Consultants has described the No campaign argument on EU full funding as “unhelpful scaremongering” which “hides the real issues”. He stated that it is “inconceivable” that the EU would not allow transitional arrangements for schemes.

Being told that Scotland cannot, uniquely among wealthy nations, sustain what is a relatively low level of pension by any similar standards, is a somewhat odd claim. Logic shows that Scotland already pays its way and has better prospects of continuing to do so with targeted decisions made here rather than elsewhere.

• Rachel Holmes is a chartered accountant and has worked for 17 years for major financial institutions in Scotland, London and Luxembourg. She has been a full time lecturer since 2007 with the Institute of Chartered Accountants of Scotland and, more recently, at university in Edinburgh. All views are her own.