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.