Pensions advantage for an independent Scotland

Written by Rachel Holmes


Last year the Institute of Chartered Accountants of Scotland (ICAS), my own professional body, wrote a paper asking questions about pensions provisions after a yes vote in this year’s independence referendum.  This was widely reported in the media, not for what it was, a series of questions concerning Scotland’s pensions’ future, but as a proclamation by fearful doomsayers of ‘black holes’, deficits and hopelessness.

Shortly after the ICAS report, the Scottish Government met its stated early autumn timeline in publishing the policy paper on pensions in an independent Scotland.  This has now been reflected upon by ICAS and a response provided by the Government in terms of the questions the accountants feel have not been fully answered.

For ICAS, one of the two key questions remaining related to the Scottish Government’s proposals for the state pension age (SPA).  Here there is scope for Scotland to do things differently from the Westminster policies of increasing SPA.  Following a vote for independence the Scottish Government will form an expert commission to review the UK’s proposed pension age increase to 67.

There are reasons for why this is possible.  Scotland has a lower average life expectancy than the UK and thus the total money used to pay state pensions could be ‘spread’ over shorter retirement life spans meaning more income per year available for Scottish pensioners.  At the moment pensioners in Scotland get less over their retirement than the UK average because, on average, they die earlier.

ICAS question the possibilities for change of pension age and the interpretation of the pension age difference between Scotland and the UK average.  Yet, these proposals are based on sound figures including a broad range of statistics from the Office for National Statistics (ONS) and National Records of Scotland. These included statistics on life expectancy at 65, life expectancy at birth and comparisons between the UK, its constituent countries and the best and worst performing EU member states.

That Scotland has a poorer life expectancy that the UK is also supported by further statistics published on 7/2/14 by the ONS.  The National Institute for Economic and Social Research (NIESR) published their analysis on pensions on the same day.  It indicates clearly that Scots do not receive the same amount of resources by sharing a common SPA with the rest of the UK where people live longer on average.  The difference amounts to the possibility of Scotland delaying the pension age increase to 67 for a full twelve years according to the NIESR.  In other words, Scotland could raise the SPA in 2039 not in 2027 as is the case under Westminster ‘one size fits all’ arrangements.

The ‘one size fits all’ arrangements we operate under as part of the UK also create a ‘transfer out’ for Scotland when pension age is raised at Westminster.  The NIESR analysis points out that, due to Scotland’s lower life expectancy and higher proportion of pensioners to workers, any increase in the state pension age across the UK means Scotland loses proportionately more.  The NIESR states that “the increase to 66 in 2020 represents a transfer from Scotland to rUK of nearly £50m per annum”.

The statistics present ample evidence to ICAS on the Scottish Government’s proposal for an Expert Commission to examine an appropriate rate of increase to the SPA for Scotland.  One of the main advantages a yes vote will deliver is governments, of whatever hue, whose remit is to design policies tailored to our particular situation, demographics and other economic aspects.  Pensions policy includes making best use of our resources to meet the specific circumstances of Scotland.  It is one of many areas where there is scope for something better.

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About the author

Rachel Holmes

Rachel is a lecturer in taxation, accountancy and finance at Edinburgh Napier University, with previous international experience in financial services with J P Morgan, Lloyds TSB and the Trust Corporation. She is also a chartered accountant and member of the Institute of Chartered Accounts of Scotland. This informed Rachel’s view that Scottish business can thrive with independence. Working in Luxembourg and lecturing in Hong Kong also provided Rachel with a global perspective on how nations can prosper with the fiscal powers of independence.


  • Isn’t it a tenet of the nationalist case that standard of living and associated health outcomes, including, presumably life expectancy, will improve in an independent Scotland vs in the UK?

    The moderately insightful will have caught me already.

    Which is it? Poor health and cheaper or good health and costlier?

    The big issues for Scotland re pensions are:

    – the relatively large state liabilities in respect of the larger amount of public sector employment vs rest of UK

    – the relatively poor replacement ratio and fertility rates. Scotland will have to open up to mass immigration to resolve this.

    The numbers imply a complete change in the make up of the population.

  • I have concerns about NHS superannuation scheme which I have paid into since 1985. Will people like me find they will be worse off? Will Westminster fiddle the fund if we get independence? I do hope also the retirement age is lowered. The majority of healthcare workers at the original retirement age are physically and often mentally spent. Many have worked 40 years of shifts over 8& 10 day periods, on- call and night shifts. It is really worrying for us that we may drop before the extended retiral age

    • As the rationale behind the idea that Scotland won’t need to increase pension age at the same rate as the rest of the UK is because of lower life expectancy in Scotland then surely this is answered by the fact that Norway has an even higher life expectancy than the UK.

      • Natalie

        Thanks for your comment. Yes indeed Norway has set their pension age higher. I’m not saying Scotland should not, specifically. What I’m trying to demonstrate is that Scotland is different in various aspects from the one size fits all of the UK. We would have the choice to vary pension age and could make that choice taking other things into account depending on what is desirable for our specific circumstances. At the moment Scotland has no choice at all in these matters but must accept the only option on the table which is set for the UK as a whole. We, if independent, with power over pensions could, conceivably do something different. Surely a good thing to at least have the choice.

    • It’s a fair question Miles. The decision to delay increase in pension age would be for the government of the day in an independent Scotland. I’m personally not saying we should all retire at 65. That is a different argument. What I hoped to illustrate was the choice available to us if we do have control over our own affairs. Under the status quo we have no choice at all to do anything differently with regard to pensions, nuclear spend, economy and most tax. Scotland has differences as the pension age discussion illustrates but we must accept one policy alone as set by London.

  • I have some questions for Rachel. In the event of independence would public sector pension liability for people who reside in Scotland be the responsibility of an independent Scottish government? i.e. If a Scottish resident served in the army and retired prior to Independence would their pension be continued to be paid the UK or would it be transferred iScot government? Likewise if they left the Army before independence which government would be responsible for pension payment when they reach retirement age?

    Iain I am interested in your view on the State Pension Age not having to go up if Scotland creates an Oil fund as in Norway. The SPA in Norway is 67 years. The non state pension occupational appears to be privately funded and available at age 62 which seems to equate to the personal pension in the UK which can be taken between the age of 55 and 75. How will iscot keep the state pension age from going up to 75 if Norway with its mature oil fund is unable to do so?

    • Thanks for your question Miles. Yes. The Scottish Government has stated in the pensions white paper and in the Scotland’s Future document that it will take full responsibility for the state pensions of those in Scotland. More detail on the various provisions for different circumstances are also in the white paper.

    • All pensions are the responsibility of the agencies that collects the contributions. If an agreement regarding pensions is not reached then Westminster remains liable for them.
      Their is no legal method to pass liabilities without the consent from the body receiving those liabilities.
      Remember, all pensions are contribution based,

  • The common causes of lowered life expectancy (in Scotland) are diet and lifestyle, both influenced by poverty. Since most financial experts agree that an independent Scotland would be better off financially, would you not expect to see a lowering of the ‘early’ mortality rate, slowly coming up to, or overtaking, that of the UK average? At that point it may be possible to raise the SPA, but this would not necessarily be required or desirable if a pension fund a la Norway was available.

    • Yes I aree with what youysay Iain. All these are considerations which can be taken into account. But not while we are governed by Westminster who are obliged to set policy for the averagevlife span of the whole UK. I sincerely hope the average life span of Scots will improve and there is evidence to show that an improving economy will help achieve this. But only if we have the powers to do so of course.

  • […] Last year the Institute of Chartered Accountants of Scotland (ICAS), my own professional body, wrote a paper asking questions about pensions provisions after a yes vote in this year’s independence referendum. This was widely reported in the media, not for what it was, a series of questions  […]

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