Pension schemes should not rest easy as Scots vote No to independence, changes still lie ahead.
After an impassioned debate, the Scottish people have voted by a narrow majority to remain part of the UK. This brings a halt to the mounting uncertainty in many areas including pensions. There had been fears among UK pension schemes that, had Scotland voted for independence, schemes and their sponsoring employers would be forced to make changes – including stricter funding requirements, greater costs and complexity.
Employers had been particularly concerned that, if an independent Scotland had become a member of the EU, schemes operating across the Scottish border may have been forced to become fully funded without the opportunity to use a recovery plan. This could have left Britain’s companies needing to raise £100bn to fund pension deficits sooner than planned.
The impact of further devolution
While the prospect of schemes operating across the Scottish border being forced to meet stricter funding requirements has now fallen away, pension schemes and their sponsoring employers should not rest easy. The Scottish Parliament was promised additional powers from Westminster in the run-up to the vote and it is likely that they will seek to use them. If differences arise in legislation and taxation between Scotland and the rest of the UK, this will lead to complications for administering schemes with members in both regions, and therefore increased costs.
In particular we expect to see:
- changes in taxation. The Scottish Parliament has the power to set different rates of income tax from April 2016. Further, the main political parties have signalled their intentions to look again at tax relief on pensions.
- a re-opening of the debate on state pension age, as life expectancy varies across different regions in the UK. In 2010-2012 a male aged 65 could expect to live to 82 in Scotland, but over 83 in England, according to the Office for National Statistics.
- Scotland may also seek to issue its own debt, leading to changes in the gilt market.
Further, devolution is not an issue only for Scotland. England, Wales, and Northern Ireland are likely to seek similar powers to those promised to Scotland, resulting in more local differences over time.
Politics is key
Whilst the short-term upheaval has been avoided, there may be long-term implications ahead which could have an impact on pension schemes. Employers will want to keep an eye on developments. With the next general election in the UK due in May 2015, changes in the European bodies, and a possible EU referendum in 2017, politics will play a key role for the foreseeable future.