In the concluding part of this special report on Scottish independence, the Young Money Blog looks at the potential implications of a yes vote for Scotland’s pensioners – current AND future (yep, that includes us young folks!)
Burning questions about pensions in an independent Scotland have yet to be answered on what is proving to be a crucial battleground on the eve of the referendum.
These aren’t my hands, in case you were wondering…
In a survey by Glasgow-based Martin Aitken Financial Services, 60 per cent of 170 clients said their greatest concern, out of all the issues surrounding Scottish independence, was the “personal financial implications” and the future of the state pension.
The Scottish Government has not elaborated on the tax incentives it would introduce to encourage long-term saving.
Nor has it confirmed it will copy the Coalition Government by allowing Scots to have unfettered access to their pensions at minimal tax rates.
The policy, announced in this year’s Budget, has already boosted nationwide levels of retirement saving even before its introduction next April, according to research published by the consultancy LCP last month.
The SNP has also yet to offer free guidance for every worker reaching retirement, another of the Treasury’s much-discussed pension reforms.
But it has vowed to improve free advice at retirement as part of its Financial Capability programme, and to work with Scottish companies to develop alternatives to the much-maligned annuity.
In the event of a Yes vote, the Scottish Government has promised a new range of regulators to help protect private pension buyers and employees who will continue to be automatically enrolled into workplace pensions.
These would include Scottish versions of the Pensions Regulator, the Financial Ombudsman and the Financial Conduct Authority. It says 27 independent EU countries have their own regulators.
The Pension Protection Fund, however, may or may not be replicated north of the border.
Decisions on how to cover risks faced by Scottish pension holders could be fraught with difficulty, the National Association of Pension Funds (NAPF) argues.
In a paper published earlier this year, it stated: “There is uncertainty in the short term about which schemes would be overseen by which body, what would happen to Scottish schemes that have already entered the UK pension protection fund in the short term, and how any schemes in the PPF that may be identified as cross-border following independence will be separated.”
The NAPF claims that unpicking the current regulatory and compensation structure “would be extremely difficult and would require careful management over a long period of time,” leading to substantial costs.
“Ultimately, these costs may have to be passed on to pension-scheme members, eroding the value of their pension savings.”
Furthermore, a Scottish equivalent of NEST, the state-backed pension scheme for employers of any size, may not give users value for money, the Institute of Chartered Accountants in Scotland has suggested.
This is because the country’s smaller number of pension savers will still be required to pay “fixed costs relating to the initial set-up and continuing operation” of such a scheme.
Investment giant Blackrock would prefer a new currency for an independent Scotland but has warned of “added complexities” should pension schemes have to accept contributions in two separate currencies.
Alasdair MacDougall, director of Martin Aitken Financial Services, said uncertainty was the principal cause of the negative findings in the client survey.
“That causes major problems if people think there is no plan B when it comes to a currency union – and there is a real risk that migration of financial brains and institutions down south could have a significant impact on the quality of financial services up here.”
Another issue for occupational pension scheme members in defined benefit schemes comes in the form of an unexpected U-turn from the European Commission. Cross-border pension schemes will still be required to be fully funded at all times after the EU decided against scrapping the current regulations earlier this year.
Joanne Segars of the NAPF said: “The European Commission had been expected to relax these special cross-border requirements, but it has disappointed many observers by leaving this part of the pensions directive unreformed.
“The knock-on effect of this is that schemes with members both north and south of the Border would become much more expensive to run if Scotland were to vote for independence.”
The Scottish Government says: “In terms of rights and accrued entitlements to private pensions, there will be no changes on independence.”
It adds: “Scotland and the UK will work with the EU to put in place the measures needed to deliver a smooth transition to fully funded pensions.”
There is more certainty on state pensions in an independent Scotland. SNP ministers would maintain the “triple lock” reform initiated by their Westminster counterparts last year, guaranteeing a state pension rise in line with earnings or inflation, or at the rate of 2.5 per cent, whichever is greatest.
An independent Scotland will also give a higher flat-rate pension than the UK, £160, by 2016/17 and continue to offer savings credit.
But there is still no word on what the state pension age would be. The level has been raised to 66 from 2020 and 67 from 2036 by the UK Treasury, making much-needed savings.
ORIGINALLY PUBLISHED IN THE HERALD SEPTEMBER 2014, COPYRIGHT IONA BAIN ©
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