Analysis: Cross-border schemes could prove a thorny problem

In AN independent Scotland, according to the Scottish Government’s paper, the pension system would be structurally similar to existing UK arrangements.

Picture: TSPL

Establishing a similar system would not be straightforward, however.

There is a crucial area where this approach may not be possible – the funding of cross-border pensions.

The UK interprets the EU Pensions Directive very strictly by requiring cross-border schemes to be fully funded at all times: these are schemes with employees in more than one country.

The Scottish Government is seeking an arrangement whereby the majority of underfunded defined benefit schemes that become cross-border following independence would be permitted to continue with their existing arrangements for paying down their deficits. With some extending beyond 15 years, this would far exceed the three years permitted for UK and Irish schemes when the cross-border rules were introduced.

The UK government would need to agree to the plan. Indeed, the issue of underfunded cross-border schemes would be as significant for the remainder of the UK as it would be for Scotland. It is also likely that the agreement of other EU member states would be needed. Therefore, it is highly questionable whether any meaningful progress could be achieved on this by the referendum date.

• Christine Scott is assistant director, pensions, with Icas, the professional body of chartered accountants.