Economics of Independence Pensions Scotland's Economy

Pensions, Investment and the Building of a New Scotland

Written by Jim Osborne

This article is part of our Vision for Scotland series, where business for Scotland members share their ideas for a better Scotland in order to stimulate intelligent debate and discussion.

VisionForScotlandBy Jim Osborne

The independence debate is providing the nation a rare chance to more thoroughly debate new ideas and fresh thinking as we seek to consider what tailored innovative Scottish solutions could be devised and successfully executed to overcome the challenges and seize the opportunities of our time.

What follows is a summary of a proposal to create a new pensions system for an independent Scotland which simultaneously creates a Sovereign Wealth Fund (SWF) that serves as a major source of finance to support the transition to a new fairer, greener, more prosperous, more environmentally sustainable  economy which benefits the nation as a whole.

A Pensions Model for Scotland

The proposal is to collectivise into one “super fund” all the occupational pension schemes which have members who are employed in Scotland (whether the employer is headquartered in Scotland or not). This includes private and public sector schemes as well as defined benefit and defined contributions schemes.

The fund will be the source of pension payments to Scotland’s citizens when they retire. Benefits will be based on earnings, so the scheme will be of a defined benefits character for all. The scheme will cover all citizens whether they are currently in a pension scheme or not.

Employers and employees will pay contributions into the fund based on a fixed percentage of payroll. The employer will contribute at least half of the contributions with the apportionment of the other half being a matter for collective bargaining. The state will pay the contributions for the unemployed and others who are unable to work due to a disability, caring responsibilities, etc.

The fund will be invested in accordance with strict principles which include the requirement for the fund to be invested in a manner which supports the development of a fairer, greener and environmental sustainable independent Scottish economy and also facilitates the transfer of political and economic power to communities.

The fund will be managed by a National Board of Trustees whose responsibilities will be to protect the long term viability and financial sustainability of the fund so that it is able to provide a decent level of pension provision for all into the future as well as fulfil the investment principles of the fund.

The investment model adopted will be a stewardship model whereby the fund acts as a long term committed investor in enterprise and infrastructure in exchange for binding agreements regarding the cash flows returning under agreed conditions to the fund over time. The investment practices of the fund will avoid speculative trading of assets.

The Benefits

This model offers solutions to several major challenges.

It provides a sovereign wealth fund which can support the development of a new economy, including a rapid scaling up of renewable energy, and the expansion of community owned enterprise. Scotland’s responsibility to contribute to tackling climate change will shorten the life of its North Sea fossil fuel reserves and, therefore, those reserves cannot be the source of revenues to build a sovereign wealth fund.

It provides a defined benefit pension scheme for all citizens, thereby collectivising investment risk across the whole of society and removing that burden of risk from sponsoring employers of defined benefit (DB) pension schemes and from the beneficiaries themselves in defined contribution (DC) schemes.

It relieves businesses from the responsibility of funding pension deficits in DB schemes, thereby freeing up their capital to be dedicated to the real purpose of the enterprise.

Any “deficit” in a collectivised scheme is highly unlikely ever to be realised….such a scheme is highly unlikely to become insolvent – the state is capable of bolstering the fund if ever the deficit were to present a real risk to the pension system and/or the economy.

The provision of a large fund for the payment of future pensions reduces the inter-generational burden of pension provision. In a state pay-as-you-go pension system funded out of current taxation the current working population funds the pensions of the retired generation of pensioners. That will not be the case in the proposed model except so far as the pay as you go (PAYG) state scheme may be called upon as a “top up” scheme where pensions paid from the SWF fall under a specified national minimum.

Whilst the “deficit” in this model is not such a critical factor as it is in the present pension landscape we have today, it remains a desirable objective to maintain the solvency of the SWF. There will remain a requirement for an actuarial approach to the determination of contribution levels and the benefits structure. Unless this is done the long term viability of the fund could be weakened, thereby increasing the risk of the state being called upon to make good the deficit. Such a scenario would result in an increase in the inter-generational burden. The design of the contributions and benefits structure and any changes to it will be a matter of public consultation, informed by expert actuarial advice.


Full details of the proposed model for a new Scottish pension system and sovereign wealth fund are set out in the paper “A New Pensions System for Scotland”, which will be submitted to the Common Weal project.  I believe this is exactly the kind of opportunity that independence brings, which business, government and the broader population could and should be debating in the lead up to the referendum next year.

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About the author

Jim Osborne

Jim has 28 years of working experience in the general insurance industry with Allianz Plc as a claims investigator/negotiator, involved in the handling of a wide range of claims; domestic, commercial and industrial. In the last decade or so I specialised in personal injury claims relating to road traffic and industrial accidents.

He also spent 6 years as a member nominated pension trustee to Allianz staff pension scheme.

Jim is a volunteer member of the Bute Renewable Energy Project Steering Group and a founder member of Jordanhill Community Initiatives Group.


  • Sounds an excellent concept. What about Scots who work abroad for a while? Would there be provision for them to continue paying into the fund while abroad – or for the fund to have pension payments in another fund transferred on return to Scotland?

    • It would depend on who the employer is. If a Scottish company with an overseas operation, I can see a possibility that contributions continue to be made in to the Scottish national scheme. If they work overseas for a non-Scottish company they would need to join that company’s scheme and if later return to work in Scotland arrange a transfer into the Scottish national scheme…..there are provisions in the paper for repatriating citizens. None of these arrangements create a cross border scheme so dont fall foul of the EU IORP Directive, if it ever gets implemented.

  • Having read the full paper, I realise this is one alternative from a range of possible options but I am very impressed by Jim’s proposal.
    I like the aspiration behind it, the redistributive element, the way it will encourage people to take responsibility for their retirement, the living wage basis, the creation of sovereign wealth fund, (and the way it makes cross border requirements redundant!).
    From a social justice perspective it’s spot on IMHO and would define Scotland as one of the countries that leads the way with regard to the provision of retirement income.
    An excellent proposal Jim.

  • I may have my wires crossed here but am I correct in saying that the EU dropped plans for solvency requirements earlier this year (Solvency II)?

    If they have, it’s extremely galling that this scare story is trotted out regularly with no correction. Only this week at Westminster Scottish Questions we had an MP from Milton Keynes respeating the doom mongering about this requirement for solvency and how it will “affect” Scottish schemes.
    Apologies if I’ve got this wrong (not a pensios expert)

    • I would hesitate to conclude the EU has “dropped” the plans….the UK has successfully delayed any further movement towards implementation, with the co-operation of Germany, Netherlands and Ireland who also had concerns about implementing IORP, but that does not mean it won’t come back again at some time in the future. However I think it is right to say that the Better Together crowd have carried on using IORP as the basis for a scare story when they know full well IORP implementation has been stalled. JIM

  • There is another important feature of this model which addresses a key issue that critics of independence have made regarding pensions….the implications of the EU Directive in respect of funding of cross border DB pension schemes.

    The proposed scheme will not be a “cross border” scheme and the requirements under the EU Directive requiring companies to fully fund cross border DB pension schemes would not arise. It is not a cross border scheme because it covers only Scottish employees (employed in Scotland) of Scottish or overseas companies. The employees of both Scottish and overseas companies, who are employed outside Scotland, would be covered by separate schemes sponsored by their employer and established in accordance with the pensions regulations of the overseas country in which they operate.
    Jim Osborne

  • Where can I access the paper “A New Pensions System for Scotland” mentioned in the conclusions?

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