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I am a semi-retired former Scottish trade union policy wonk, now working on a range of projects. This includes the Director of the Jimmy Reid Foundation. All views are my own, not any of the organisations I work with. You can also follow me on Twitter. Or on Threads @davewatson1683. I hope you find this blog interesting and I would welcome your comments.

Tuesday 4 February 2014

Pensions and Independence - the unanswered questions

ICAS - the professional body for Chartered Accountants has returned to the fray on the subject of pensions and constitutional change.

They published a useful introductory paper on pensions and constitutional change last year and I blogged a commentary here. Since then the Scottish Government has published a paper ‘Pensions in an Independent Scotland’ and the White Paper. The aim was to reassure voters that their pensions will continue to be honoured in an independent Scotland with continuity of systems and regulation. I published a commentary on this here.

ICAS has had a further look at these publications and has identified a number of areas of concern:

• There remains no clear plan as to how the Scottish and UK Governments will engage with the EU on how to minimise the impact of the cross-border funding rules on defined benefit schemes carrying deficits, which become cross-border schemes, in the event of independence.
• The three year transitional period being discussed by the Scottish Government for addressing pension deficits held by new cross-border schemes is likely to be wholly insufficient as many UK employers currently fund scheme deficits over a much longer period.
• We have further questions about the feasibility of an independent Scotland sharing pension protection arrangements with the UK while establishing a separate pension regulator.
• We anticipate additional complexity than is currently acknowledged in relation to whether an individual’s entitlement to a state pension at the date of independence would sit with an independent Scotland or with the UK. Similar issues arise in respect of entitlement to a pension from an unfunded public sector pension scheme.

David Wood, Executive Director, Technical Policy and Practice Support, said

These Scottish Government papers have provided useful additional detail in relation to pension regulation and provision in an independent Scotland but some of our key questions remain unanswered. While we recognise that it will not be possible to answer every question prior to the Referendum, nevertheless important questions remain on how legacy issues will be resolved and new arrangements will be implemented.”

On public services pensions ICAS believes that these questions need answering:

• What should the criteria be for determining which government would be responsible for the pensions of individual members of unfunded public sector pension schemes - for example, members of the Armed Forces Pension Scheme; the NHS in Scotland Pension Scheme and the Principal Civil Service Pension Scheme?
• What other transitional arrangements would be needed to successfully migrate responsibility for scheme members living in Scotland at the date of independence, including member communications?
• How does the Scottish Government propose to define “living in Scotland at the date of independence” or “country of residence at the date of independence” for the purpose of determining responsibility for paying the pension of members of an unfunded UK scheme? Issues of citizenship may be relevant here as they would be in relation to the State pension.
• What amount or reimbursement would the Scottish Government seek to negotiate from the UK Government by way of providing pensions for those with “accrued” entitlement to a pension from an unfunded UK scheme?

For UNISON members the allocation of costs for 'unfunded' or 'pay as you go' schemes is an important issue - primarily for the Scottish NHS scheme. While we have the global liability figure in UK government accounts, this is fairly meaningless. I am surprised that the UK government has not asked GAD to undertake a more detailed analysis of this.

Reimbursement is not an issue for local government as the funding is already devolved and independence would make little difference. In fact UNISON has argued that this should be fully devolved to Scotland. In our private sector schemes, separating the funds could be a way around the EU rules. However, in some cases this could leave quite small schemes that may not be viable, or at the very least more expensive to run. In pension investment, bigger is usually better.

Both sides in the independence debate should recognise that pension security will be an important issue for many voters. It is their deferred pay and represents a huge investment for many workers. This ICAS report raises further important questions that deserve proper answers.

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