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It mostly covers my work as UNISON Scotland's Head of Policy and Public Affairs although views are my own. For full coverage of UNISON Scotland's policy and campaigns please visit our web site. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Thursday, 24 April 2014

Pensions and independence - need more numbers and less rhetoric

The latest independence pensions row still leaves the voters short of hard data on which to assess the implications for state and occupational pensions. Pensions are too important to be treated in this cavalier manner.

The UK government has today published the latest in their Scotland Analysis series on work and pensions. My main interest is the pensions chapter as I am the lead negotiator for the largest pension scheme in Scotland (LGPS) and work with many others.

The essence of the paper's argument is:

    The UK has a sophisticated pension system developed over many years.
    The size of the UK enables economies of scale and risk sharing such as the Pensions Protection Fund.
    Scotland's ageing population and White Paper policy commitments add £1.4bn per year to the costs of pensions in an independent Scotland.
    Significant cost implications of setting up new systems and disentangling Scotland from UK .
    Public service pension liabilities of around £100bn.

The Scottish Government's response was given by Nicola Sturgeon who said, "Pensions and welfare are more affordable than in the rest of the UK, that would be the starting point of independence. And why do a I say that, well they make up a smaller proportion of our GDP and a smaller proportion of our tax revenues. This is just another example of a UK government that is scaremongering that is plucking figures out of thin air to try and tell people in Scotland you can't do it."

Comparisons with the proportion of tax revenues is as as pointless as the UK Government's comparisons with oil revenue. Sadly, this sort of exchange is what passes for informed debate at present.

It certainly is the case that the paper's numbers, if not plucked out of thin air, are suspiciously rounded and there isn't a lot of detail as to how they are calculated. Having said that, the Scottish Government has produced even fewer numbers to justify their assertions.

On the cost of establishing a new system the White Paper tells us that an independent Scotland would continue to use the UK systems for a transitional period. That of course assumes a common currency, which is unlikely, and the same benefits - when the White Paper tells us they would make changes. It simply isn't credible to expect another country to make expensive changes to their systems to accommodate Scotland. Exactly how much extra all this would cost is unknown and I suspect the UK assessment is on the high side, but the onus is on the Scottish Government to publish a credible assessment.

The Scottish Government is certainly right to claim that pensions would be cheaper in Scotland because we die earlier. Any pensions negotiator knows that this is the key metric determining the cost of pensions. However, they are ignoring the other costs that go with poor life expectancy such as ill health, older workforce etc. Having recently renegotiated the biggest pension scheme in Scotland, these factors balanced out to the extent that the Scottish scheme cost the same as the English one. As John Swinney signed off that calculation he should understand this!

For private sector occupational pension schemes the cross border provisions of the IORP Directive are still a concern given typical underfunding. In most cases it would require a very challenging funding increase or splitting the pension scheme. For Scottish based companies of a reasonable size this won't be a problem, but for the Scottish arm of UK companies it will be. The Scottish Government was banking on the EU rules being reviewed, but that is now not going to happen. Something the FM was obviously not aware of when he wrongly implied that they would, in an answer to a question at the STUC last week.

The weakest section of the UK paper is on public service pensions. A very crude number of £100bn is presented without any attempt to calculate the actual liability. Apparently this is too complex. Strange, given that the UK Public Service Pensions Act requires just such an assessment of liabilities. The paper also gives the impression that this liability falls on Scotland on Independence Day! Of course it is spread out over many years and doesn't reflect the annual revenue from employer and employee pension contributions. You need to look at both sides of the balance sheet. The local government scheme is already separate in Scotland and won't cost a penny more, and the NHS is actually in surplus. We also know that UK public service pension costs are falling as a proportion of GDP.

In conclusion, if we ignore the rhetoric from both sides, the actual paper is a useful contribution to the debate and poses questions that the Scottish Government's very broad brush on pensions needs to address. However, it could have been much more useful if the Treasury had commissioned the Government Actuary Department to do some real calculations, rather than rely on pretty crude apportionment. 


  

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