Guest blog written by Neil Lovatt who can be found on Twitter @neiledwardlovat
Neil is an Associate of the Chartered Insurance Institute and blogs on financial services. He offered to deliver a professional's critique of the section in Wings Over Scotland's Wee Blue Book entitled "Pensions" and I'm happy to publish it here. As with all my own blog posts: if I'm notified of any material errors I will be happy to correct and/or offer Neil the opportunity to clarify
As I say in the Live Red White & Blue Book, pensions are a highly complex topic. They need not be, but government tinkering over the ages has made them fantastically complicated. That’s why you can’t legally advise on pensions without being qualified in the UK. There's a very good reasons for this: it stops people who don’t know what they are talking about confusing others on the subject.
It’s a shame the Financial Services & Markets Act doesn’t apply in the circumstances of the Wee Blue Book as, in my professional opinion, it would be ruled illegal for failing the principles of “clear, fair and not misleading”.
The first paragraph doesn’t get off to a good start:
Pensions are a matter of great concern to many Scots, and as a result the No campaign spends a considerable amount of its time trying to frighten people into believing independence represents a threat to their pension. Yet as with currency, pensions are one of the few aspects of the independence debate about which it IS possible to state the position with certainty.Before I take this apart, I'll let the Wee Blue Book do it for me. The last line of the Pension section itself refutes the first paragraph:
The idea that a No vote provides either security or certainty over pensions is simply a myth. Nobody can say what the next government England elects will do.This cuts both ways so the converse must be true. The idea that a Yes vote provides either security or certainty over pensions is simply a myth. Nobody can say what a government in an independent Scotland will do. It’s likely that Stu was tired - or more likely confused - when he wrote this last line; it completely contradicts the certainty that he set up at the beginning. For the record I agree with the latter sentiment.
There is no certainty over pensions in an independent Scotland other than the uncomfortable reality that we know with confidence that UK pensions would end on independence. The reason we can say this with such certainty is that both sides agree on this position.
The Scottish Government published a very good paper (> Pensions in an Independent Scotland) a full year before the referendum. In this they clearly set out the priorities for pensions and how they would operate in an independent Scotland.
The Scottish Government were unambiguous: existing pensioners in receipt of a UK State Pension and those currently accruing a UK State pension would - after independence - receive a Scottish State Pension paid for by the Scottish Government rather than the UK Government.
It's there in back & white: the UK State Pension ends and moves to the Scottish Government. What makes this worse is I know Stu knew this because we have had conversations about it at the time.
Conclusion : Factually inaccurate - the UK pension would have ended on independence.
The Wee Blue Book then goes on to try and substantiate the certainty of UK pensions with evidence which is at best limited. It opens with a highly selective quotation from Ian Davidson:
For example, Labour MP Ian Davidson, chair of the Scottish Affairs Select Committee, made these comments in the House Of Commons in May 2014:
“The state pension of any individual in Scotland, in the event of separation, would not be adversely affected [...] they would continue to get the level of state pension, the same as everyone else in the UK… people themselves can be assured that their pensions are secure.”This was followed by a report from Steve Webb’s evidence to the Committee:
State pensions would still be paid after independence, a UK minister has told MPs, despite concerns raised by the Better Together campaign. Giving evidence to the Scottish Affairs Select Committee, Lib Dem pensions minister Steve Webb said that anybody who had paid UK national insurance would be entitled to their state pension whatever the outcome of the referendum. The intervention contradicts concerns raised by former Labour Chancellor Alistair Darling, the leader of the Better Together campaign.This is consistent with Stu’s usual style - he's being selective with the facts to try and avoid the awkward reality that these quotes were specifically in the context of the right to a pension which an individual would accrue. Ian Davidson clearly stated in his opening remarks that they wanted to talk about rights “as distinct of who is paying for it”. This important qualification seems to have been missed from the Wee Blue Book.
Furthermore Steve Webb’s evidence is very clear in his written evidence to the Committee on the subject of who is paying for pensions and the threat that independence posed to them. In this Webb states very clearly:
“I would think the Scottish people would expect their Government to take on full responsibility for paying pensions to people in Scotland including where liabilities had arisen before independence. Similarly people in the rest of the UK would not be expecting to guarantee or underwrite the pension of those living in what would then have become a separate country. The security and sustainability of pensions being paid to people in Scotland would, therefore, depend on the ability of Scottish tax payers to fund them.”Again this vital piece of information is missing - readers of the Wee Blue Book are denied the opportunity to see that there is a clear and real risk to their pensions.
Finally in this section Stu goes on to muddy the waters with references to the DWP letters on the subject of pensions:
And in any event the facts had been well established long before then, with the Department for Work and Pensions having made a similar statement in January 2013:This yet again misses the key point about rights of the individual: what matter is who those rights are against (i.e. -who is picking up the tab, the Scottish or rUK government?).
“If Scotland does become independent this will have no effect on your State Pension, you will continue to receive it just as you do at present. Anyone who is in receipt or entitled to claim State Pension can still receive this when they live abroad. If this is a European country or a country where Britain has a reciprocal agreement they will continue to receive annual increases as if they stayed in Britain."
The DWP letters were carefully worded; after all it was not for the civil service to comment on who would be administering or paying for pensions in an independent Scotland. These replies were designed to reassure voters without straying into politics, sadly this gave people like Stu the opportunity to wilfully misinterpret them to contradict the mutual position of the UK and Scottish Governments.
Conclusion : Factually inaccurate - and certainly fails the “clear, fair and not misleading" test: all Scottish pensions would have depended on the Scottish Government’s ability to pay
Stu’s claims about private pensions demonstrate nothing more than his limited knowledge on the topic. Whilst the cynic in me thinks that this was deliberate, it is more likely ignorance.
Private workplace pensions are the only area of uncertainty. EU rules impose funding requirements on pensions operating across national borders, which would apply to any UK-wide scheme.
However, there are numerous options available to circumvent this problem, the simplest of which is for the firms operating the scheme to set up a Scottish office and handle the Scottish and rUK sides separately. The decision as to which solution to adopt will be one for each company to make individually. Unfortunately it’s simply not possible to answer generically or in advance.There are indeed numerous options available to firms available to deal with cross border schemes but they are all complex and expensive.
The “simplest” is not to split the schemes setting up separate ones for each region - especially if the schemes were in deficit i.e. the value of the scheme was lower than the cost of future benefits guaranteed by the scheme (quite common and, within reason, nothing in itself to worry about). The reason for this is that a cross-border scheme would need to be fully funded (i.e. the value of assets must be brought up to equal the benefits) and that could cripple a number of employers, leading to the scheme closure.
Stu’s solution of setting up a new scheme in Scotland omits this crucial fact: it would have to be fully funded. The likely consequence (if the employer couldn’t afford to close the deficit) would be that at least the Scottish part of the scheme would be closed. As has happened in the past, it is likely that many employers would use the opportunity of change as an excuse to end their final salary (gold plated) pension schemes.
Conclusion : Fails the “clear, fair and not misleading" test: independence would likely place huge pressure on private cross border final salary schemes, presenting members with risk but no beneficial upside.
If you want to read about 10 glaring factual inaccuracies in the Wee Blue Book relating to Economics, please see this post > Wings & His Wee Blue Book of Errors