By Richard Johnstone | 25 October 2013
Scottish Government ministers should set out more details about how much public money would be available to pay for the state pension if the country votes for independence, financial experts have said.
In a commentary on Scottish independence, the Institute and Faculty of Actuaries today said there were a number of questions that could have an impact on provision of financial services in Scotland if it leaves the UK.
The paper was published after the IFoA raised a number of questions about post-independence Scotland in May, which it has now considered in more detail. The referendum on Scottish independence will take place on September 18 next year.
Among the issues raised was the need for more information on what proportion of government spending would be committed to pensions.
‘Whilst the Scottish Government has set out some of its objectives in providing a Scottish state pension, further clarity on what proportion of Scotland’s gross domestic product should be made available for pension payments would be welcomed,’ the commentary stated.
The paper highlighted that for the first term of a post-independence Scottish Parliament, the current government had committed to retain the UK government’s triple lock. This commits ministers to increase the state pension by whichever of annual earnings growth, inflation or 2.5% is highest.
However, the report warned this could lead to reluctance to remove the triple-lock, even if it is necessary to do so. In addition, a period of high inflation could lead to ‘unanticipated payments’.
The paper also highlighted Holyrood’s commitment to review the UK government’s planned increase in the state pension age, which is currently scheduled to take place between 2026 and 2028, could make other increases difficult to implement.
Although this would be an opportunity to establish a state pension age that reflects the longevity characteristics of Scotland’s residents, increasing the age has ‘long been a political nettle’, it warned. ‘There is a danger that a future government would use state pension age as a populist tool to avoid making difficult and unpopular long-term funding decisions
‘A delay in accepting the 2026-28 increase may make future increases more difficult to implement, particularly within the early years of a newly independent Scotland.’
IFoA also highlighted what it called two significant areas of uncertainty in any post-independence settlement – whether Scotland remains a member of the European Union, and whether it retains Sterling as its currency, which is the current position of the Scottish Government.
Publishing the paper Martin Potter, leader of the Scottish Board at the IFoA, said: ‘Whether a referendum results in an independent Scotland or not, it is right that discussion about how change could affect Scotland happens now. This paper considers some of the key challenges facing financial services in an independent Scotland.’
