The Scottish Government’s white paper pledges to protect state, private and public sector pensions after independence.
In the private sector, the document proposes to establish a Scottish Pensions Regulator, which would work closely with the UK Pensions Regulator and the Financial Conduct Authority to maintain a pan-UK approach to regulation.
It says current arrangements for pension protection through the Pension Protection Fund should continue, although it was also possible the Scottish Government could establish a Scottish equivalent.
An effective compensation scheme will be established, mirroring the UK Financial Services Compensation Scheme.
In an attempt to respond to fears that private pensions would suffer severe cashflow problems after independence, the document says discussions should start immediately to agree transitional arrangements to address the impact.
In the public sector, the Scottish Government has argued that Scotland already has the people and infrastructure in place to deliver high quality public service pensions.
The white paper proposes that the Scottish Public Pensions Agency would deliver additional responsibilities for public sector pensions required in an independent Scotland.
The white paper also proposes changes to the state pension. From 6 April, 2016, new pensioners will receive a Scottish single-tier pension similar to that envisaged by the Westminster government.
Within the first year of independence, the single-tier pension will be set at a level of £160 per week. That would make a Scottish pensioner £1.20 per week better off than the levels anticipated for the rest of the UK. The white paper adds that in the “unlikely event” of the UK rate for the pension being set at a higher level than north of the Border, the Scottish pension would be increased to match the higher figure.
The pension would be paid in full to everyone who reaches state pension age after the introduction date and has 35 qualifying years of National Insurance Contributions or National Insurance Credits. The Scottish Government said it would set up a commission on the state pension age to look at concerns over Westminster’s plans to increase it to 67, but it accepted it should rise to 66.
A “triple lock” on state pensions would ensure that they increased by either inflation, earnings or 2.5 per cent, which ever was highest.
On welfare, the document says UK government reforms such as the introduction of universal credit and personal independence payments would be halted. The bedroom tax would be abolished.
A key pledge is an ambitious proposal to increase the amount of free childcare available for working parents.
By the end of the first post-independence parliament, it is proposed that all three- and four-year-olds and vulnerable two-year-olds will be entitled to 1,140 hours of childcare a year.
By the end of the second parliament in 2024, it is envisaged that all children from age one to school age will be entitled to 1,140 hours of childcare per year.
Analysis by David Wood: Questions are still not answered on pensions
The white paper states that in an independent Scotland people will receive their pensions “as now, on time and in full”. Indeed, it says the single tier pension will be £1.10 a week higher than in the UK.
It suggests that the retirement age may be lower in an independent Scotland by “reserving judgment” on whether it needs to rise to 67, as is proposed by the UK government.
And it says the “triple lock” on pensions – a guarantee to increase the state pension every year by whichever is higher between inflation, average earnings or a minimum of 2.5 per cent – would remain in place for five years longer than is guaranteed in the UK.
The question is whether this is affordable? The document, although scant on costings, says it would be because Scottish life expectancy is lower than the rest of the UK. It is also proposed that a Scottish Pensions Regulator would be created – but a single UK Pension Protection Fund would be maintained. It is unclear how this might work in practice.
In our paper, Scotland’s Pensions Future, ICAS raised questions about the state and public sector pensions and the impact of European Union rules on private sector defined benefit pensions if Scotland were to become independent.
In particular, we highlighted how EU rules on cross-border defined benefit schemes could lead to massive and immediate funding requirements if Scotland became independent.
Initially, the Scottish Government said it could negate the cross-border issues by seeking a derogation from EU rules. In the white paper it calls for discussions to start immediately on “agreeing transitional arrangements” – a call which seems likely to fall on deaf ears at Westminster.
Scotland’s Future also cites the Republic of Ireland as an example of the EU rules being interpreted flexibly. However, in the Irish example the period given to rectify under funding was three years. Currently schemes in the UK have plans to rectify under funding, some over 15 to 20 years.
• David Wood is executive director for technical policy with the Institute of Chartered Accountants Scotland (ICAS).