Scottish independence: think-tank pension warning

A future Scottish Government would need to either raise higher revenues through taxation, reduce spending in other areas, or have higher debt levels, the Pensions Policy Institute (PPI) found.

The PPI has written a report on the potential impact of Scottish independence on state pensions.

The organisation is due to give evidence on the subject to Holyrood’s Finance Committee on Wednesday.

On the same day, a seminar, organised by the David Hume Institute and the Institute of Chartered Accountants of Scotland, will discuss the PPI’s findings.

In a written submission to the committee, the PPI sets out the demographic challenges facing a future independent Scottish Government, and the impact of the SNP’s pensions policies following a Yes vote in the independence referendum.

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Despite lower life expectancy levels overall for Scotland, the population is ageing more quickly than the rest of the UK, the PPI states.

“The old age dependency ratio is expected to increase more quickly in Scotland than in the UK as a whole,” it says.

“A higher old age dependency ratio can indicate that a certain level of expenditure is less affordable, as there is potentially a smaller National Insurance and income tax base available to fund the expenditure.

“Annual pensioner benefit expenditure per head of the working age population is currently higher in Scotland than it is in the UK, and is expected to increase further in the future.”

The PPI points out the UK Government’s plans to increase the state pension age to up to 68 for both men and women in the future.

Pension age

The Scottish Government has said it will reserve judgment on increasing the state pension age from 66 to 67.

Commenting on the Scottish Government’s policy proposals, it continues: “The overall impact of the Scottish Government policy proposals on annual pensioner benefit expenditure would be to further increase expenditure per working age individual in Scotland.

“After allowing for expected changes in earnings, and focusing on the difference between Scotland under the Scottish Government proposals and the UK as a whole, the difference peaks at £330 per individual of working age in 2032, where Scotland would still have a lower state pension age than the rest of the UK - £180 of this is due to the policy changes, with the remainder due to underlying demographic differences.”

The PPI adds: “Although the proposals put forward by the Scottish Government would increase expenditure on pensioner benefits, if implemented they could also lead to higher state pension incomes for pensioners in Scotland compared to the rest of the UK, depending on the final level of the single-tier pension on introduction in 2016 and the rate at which it is increased.”

Deputy First Minister Nicola Sturgeon said: “Scotland’s Future set out our proposals for an affordable, fair and efficient pensions system in an independent Scotland.

“The fact is that social protection spending, which includes pensions and welfare, is more affordable in Scotland than in the rest of the UK - and has been so for the last five years.

“We already know that we need to grow our working age population and that is exactly why we have set out the benefits to our economy of improving productivity, increasing employment and securing population growth, which can deliver an additional £5 billion a year by the end of a 15 year period.

“The challenge of supporting an ageing population comes regardless of the outcome of the referendum. But it is only independence that gives us tools to tackle it.”