Sunday, 27 February 2022

Scotland's NI Contributions and the State Pension


Some Scottish nationalists correctly recognise that an independent Scotland would have to fund its own State Pension ... but then incorrectly claim that Scotland's National Insurance contributions are greater than the spending they fund.

The truth is that Scotland accounts for 8.0% of payments into the UK's National Insurance system but receives 8.6% of the spending that system distributes. That translates into a c.£750 million annual benefit to Scotland from pooling and sharing National Insurance contributions with the rest of the UK - a benefit which would be lost were Scotland to separate.


[If you're only interested in understanding how the UK's system of pooling National Insurance works, you can skip this section]

On February 20th in the Sunday National, Scottish nationalist commentator Ruth Wishart berated Ian Blackford MP (the SNP's leader in Westminster) for claiming that, if Scotland became independent, the "commitment to continue to pay [state] pensions rests with the UK Government". The confusion caused by Blackford's intervention has been covered in detail elsewhere on this blog [see Independence by Gaslight: Pensions] but Wishart offers a fair summary when she asserts that Blackford "either hadn't read the rules on pensions or didn't understand them".

If you dip your toes into the turbulent waters of Scottish political Twitter now, you'll find one cohort of nationalists passionately arguing that the UK Government (ie. UK taxpayers) would pay the state pension in an independent Scotland, while another argues with equal passion that "nothing has changed" since 2014 and the Scottish Government (ie. Scottish taxpayers) would foot the bill.

Ruth Wishart is firmly in the latter camp and, after consulting "pensions guru (sic)" Tim Rideout, she offered the following (correct) summary: 

"The short-form version is that, as before, the National Insurance (NI) contributions of today’s workforce pay today’s pensioners."

 Unfortunately she then went on to muddy the waters by adding:

In order to calculate what an independent Scotland could afford, Mr Rideout turned to the GERS figures [..] This, he says, shows that we would collect almost £3 billion more in NI than we would pay out in pensions. Most of the surplus would be used to pay other entitlements derived from national insurance."

We will come on to detail the manifold problems with this claim, but the most obvious is that you can't define "what an independent Scotland could afford" by comparing a single revenue item with a single cost line. The only way to answer that question is to work out what the overall balance of revenue and expenditure would be and take a view as to what level of deficit would be sustainable. We won't go down that particular rabbit-hole here, but in simple summary: the total view of tax and spend as described in GERS reveals Scotland receiving a £12bn annual fiscal transfer from the rest of the UK [see GERS 2021: A Deep Dive]. This means that - before factoring in the other myriad possible economic impacts of independence - Scotland would have to find £12bn of cost savings or tax increases vs the GERS figures and/or be able to sustain a far higher fiscal deficit/GDP ratio than that currently shared with the UK (or than required to comply with the EU's Fiscal Compact). 

That said, because National Insurance (NI) is as close as we get in the UK to a truly hypothecated tax (ie. NI revenue is ring-fenced to be used only for specific spending purposes), this does give us an opportunity to see how pooling and sharing works for this sub-set of total tax and spend.

So let's take a closer look at Rideout's claim, which he first made in tweet form:

This is a textbook example of a common nationalist trope: take two vaguely related numbers, draw a superficial conclusion that makes it seem like they show everything would be fine if Scotland was fiscally autonomous and move on.

Rideout went further on a recent Zoom call with fellow nationalists. After hilariously describing the Scottish Government's GERS figures as "the unionists' numbers" he rattled off a few figures before concluding - quite wrongly - that "there was actually £500 million or so left over from the National Insurance that we paid".  This blog explains in detail why he's wrong (see footnote 14), but the short version is this: he completely missed the £2.5 billion a year Scotland gets back as a direct result of National Insurance Contributions being allocated to the NHS.

To answer the question Rideout is claiming to address we need to put in some proper analytical effort - but Chokkablog has never been shy of doing the hard yards when it comes to the numbers, so let's dive in.

Where National Insurance Contributions Go

We don't have strictly hypothecated taxes in the UK. In layman's terms that means you can't say "this tax pays for this service" because the Treasury has considerable freedom to take money and deploy it where they see fit. National Insurance contributions are, however, a special case where a significant degree of hypothecation is enforced. This allows us to look at National Insurance funds flows as a "closed system" sub-set of the wider fiscal picture.

The chart below is derived from studying the last five years' National Insurance Fund accounts, mapping the cumulative flows over that period and calculating the related Barnett consequentials. As ever, it takes a lot more effort to understand complex reality than it does to take comfort in a misleading simplification:

This diagram shows that for the five-year period 2017 - 2021:
  • Total UK National Insurance (NI) receipts were £678bn1

  • 19.0% of those receipts (£129bn) never reached the National Insurance Funds because they were allocated directly to NHS England. This is a formulaic allocation defined in the Social Security Administration Act 1992 - the percentage is effectively constant year-on-year2

  • The funds allocated to the English NHS drove increases in the devolved Nations' Block Grants of £24bn (through the application of the Barnett Formula). This means the UK system of pooling National Insurance contributions (in combination with the Barnett Formula) controls the allocation of more than just National Insurance receipts. 

  • There are separate NI Funds for GB and Northern Ireland. Transfers are made from the GB to the NI Fund "in order to maintain parity of balances" (ie. to keep the Northern Ireland NI Fund solvent). This is a direct and explicit fiscal transfer from GB to Northern Ireland of c.£0.6 billion each year.

  • A mechanism exists whereby the Treasury can take funds from elsewhere and inject them into the NI Funds by way of Treasury Grants, but his has not been used in the last five years and is not forecast to be required in the foreseeable future3.

  • 72.5% of UK NI receipts were used to pay State Pensions
  • 5.6% of UK NI receipts were used to fund a limited subset of other welfare payments and to cover the costs of administering the system
    • Other contributory benefits: the contributory components of Employment Support4 and Jobseekers' Allowances, Bereavement Benefits, Christmas Bonus5, Guardians' Allowance
    • Other Payments: primarily redundancy costs (ie. making statutory redundancy payments when employers are unable to, normally due to insolvency)
    • Administrative Costs: Mainly services provided by DWP and HMRC

  • The remaining 2.9% of UK NI receipts were retained as a surplus, adding to the closing National Insurance Fund balances. Over the last 5 years the NI Funds have operated as a closed system (ie. no Treasury Grants have been required) and NI receipts being retained has led to a £20bn increase in the NI Fund balances. To put that another way: NI receipts into the Funds (net of the NHS allocation) have been greater than NI payments out by c.£20bn over the last five years.

How UK National Insurance Pooling Benefits Scotland

Armed with the above understanding we can immediately see why Rideout's "Our NI Contributions more than fund our State Pension" formulation is, at best, misleading. Apart from anything else, he's completely ignored the sums of money which flow via the allocation of NI receipts to the NHS.

Because we've put in the hard miles to map all this out, it's easy to look at the figures for 2021 alone. So we can see that in the most recent year (the one Rideout uses) 72% of UK NI receipts were needed to fund the State Pension.

The figure Rideout quotes for Scotland's 2021 State Pension costs accounts for 74% of Scottish NI receipts ... but he has omitted Scotland's population share of overseas pensions. Include Scotland's share of overseas pensions payments (as we need to for a like-for-like comparison, see below) and we discover that 77% of Scotland's NI receipts are required to pay Scotland's State Pension compared to 72% for the UK overall.

It's not hard to see where this is leading - but let's not get ahead of ourselves. We need to do some more leg-work to compare what Scotland "puts in" to the UK's pooled NI system with what Scotland actually "gets out".

What Scotland Puts in

National Insurance

This is an easy number - so easy in fact that even Rideout got it right. The UK National Insurance figures in GERS reconcile very closely with those we get from aggregating the GB and Northern Irish NI Funds and with those available directly from HMRC. So we can state with confidence that over this period Scotland's NI contributions accounted for 8.0% of the UK total.  

Other Taxes

This is a bit trickier to follow and frankly would be quite easy to miss - but this is Chokkablog; we do analysis properly here. 

When the devolved nations get their NI-allocation driven Barnett consequentials, that money doesn't come from NI contributions but from other taxes (check the flow charts above). Of course Scotland (and the other devolved nations) contribute to that pool of taxes, so we need to take that into account.

What Scotland Gets Out

NHS Funding

The question of how much of the allocated NHS funding goes to Scotland is not as easy to answer as one might expect. The relevant legislation merely states that amounts "shall be taken as paid towards the costs of [the English, Scottish and Welsh NHS] in such shares as the Treasury may determine".6.

Whilst one might assume this would be pro-rata to the NI contributions made by each nation, according to this Fraser of Allander blogthis Economics Observatory blog and this Institute for Government Explainer, NHS-allocated NI funds all go to the English NHS, with Scotland, Wales & Northern Ireland each then seeing funding increases via the Barnett Formula. This means that Scotland gets back a "Scotland vs England" population share of those NHS-allocated National Insurance funds.  This is to Scotland's net benefit, as both the Fraser Allander commentary7 and the Institute for Government analysis8 confirm.

This means that Scotland effectively "gets out" 8.2% of the NHS-allocation driven Funds

It's worth keeping a tally here: 22.2% of the Scotland's "money in"9 to the UK's NI system comes back via the Block Grant.

State Pension

The State Pension figures we get from the GB NI Fund10 reconcile well with the figures that come directly from the DWP.  These show us that Scotland (including a population share of overseas pensions) receives 8.6%11 of State Pension payments out of the NI Funds.

For our running tally: 75.2% of Scotland's "money in" to the UK's NI system comes back via State Pension payments

Important aside: the "Spending in Scotland: State Pension" line of Box 3.2 in the latest GERS report mistakenly includes Scotland's population share of overseas pensions in the the first two years (but correctly excludes them in the last three). I have checked directly with the office of the Chief Economic Advisor to the Scottish Government and they have confirmed this presentational inconsistency. I share this here partly because it validates the robust audit-trail we're creating here - it's only by continually reconciling between the NI Fund accounts, DWP Data, HMRC data and the GERS report that this issue was spotted. To be absolutely clear: the Total Social Protection in Box 3.2 is correct and the integrity of the overall GERS figures is not being questioned; this is a relatively trivial issue with the breakdown of 2017 and 2018 data in that "for information" box. Caused me quite the headache though, I have to admit12.


So through NHS-related Barnett consequentials and direct State Pension Payments, Scotland receives back 22.2% + 75.2% = 97.4% of the funds it contributes into the UK's pooled National Insurance system - and we've yet to cover other contributory benefits, operational costs and Scotland's share of any retained balance.

We're nearly there: one last push ...

Employment Support Allowance (Contributory) [ESAc]

Unfortunately the DWP data we have doesn't split Employment Support Allowance (ESA) between contributory and non-contributory benefits, but we can range the figures. The default assumption we're using is that Scotland's share of contributory ESA is the same as its 10.6% share of overall ESA (as per the DWP data). As a sensitivity, we can assume Scotland merely gets its 8.0% NI contribution share.

Job Seekers' Allowance (Contributory) [JSAc]

The DWP data doesn't split Job Seekers' Allowance (JSA) between contributory and non-contributory benefits either, but again we can range the figures. The default assumption we're using is that Scotland's share of contributory JSA is the same as its 9.8% share of overall JSA (as per the DWP data). As a sensitivity, we can assume Scotland merely gets its 8.0% NI contribution share.

Bereavement Benefits (contributory) [BBc]

The DWP data matches the NI Fund data very closely until the introduction of Statutory Parental Bereavement Pay (which by inference is not paid out of the NI Fund and accounts for less than 15% of the total).  We assume that Scotland receives a 9.0% share of NI funded Bereavement Payments (as per the DWP data).  

Maternity Allowance [MA]

The DWP data matches the NI Fund data, so we can use it directly. Although the numbers are relatively small, what leaps out here is that Scotland's 8.2% of the population receives only 6.4% of Maternity Allowance payments (as per the DWP data).

A quick check of relative fertility rates explains this apparent discrepancy: Scotland's latest recorded fertility rate was 1.29 compared to England's 1.66. Take the relative fertility rate of 1.29/1.66 and apply it to Scotland's 8.2% population share and you get 6.4%, exactly the same as the observed share of Maternity Allowance payments. If you've read this far, you're probably the sort of person who will appreciate the little buzz I got when I realised how neatly that explains what's going on here. 

[I often wonder how many people get this deep into these blogs - if you're one of them, please tweet me @kevverage with "I got the buzz" so I know I'm not wasting my time!] 


These four benefits above account for 5.6% of the funds Scotland contributes into the UK's pooled National Insurance system. Add that to the 97.4% we covered with NHS-related Barnett consequentials and direct State Pension Payments and Scotland has received back 103% of what it's paid into the UK's pooled National Insurance System

Even if we take the low-case sensitivity (ie. assume Scotland only receives an 8.0% share of UK payments for these benefits), Scotland would still have received back 102% of what it's paid into the UK's pooled National Insurance System.

Scotland is getting out more than it puts in, and we've still to cover the other NI funded costs and Scotland's share of the retained balance. 

So let's tidy up those loose ends now ...

Other NI Funded Costs

The remaining NI funded costs account for just 1.2% of the total, split as follows 
  • 58%: Administration (primarily DWP and HMRC)
  • 29%: Redundancy (ie. making statutory redundancy payments when employers are unable to, normally due to insolvency)
  • 13%: Other
Frankly the assumption used here doesn't really matter, but it seems reasonable to allocate a simple population share of these costs to Scotland:


So now all that remains for us to do is add all of that up and allocate Scotland a share of the retained NI Fund balances:

And there you have it: 
  • Scotland pays in 8.0% to the UK's pooled National Insurance system and gets back 8.6% of the spending that pooled system drives.13
  • Scotland net benefits by over £750m a year14 (assuming Scotland lays claim to a population share of the NI Funds' retained balances15

Now. I recognise this has taken a bit more work than the "pick two numbers and pretend it proves your point" method beloved of Scottish nationalists - but isn't it a tad more satisfying to understand the complex reality?



  1. This figure (reverse engineered from the GB and NI National Insurance Fund accounts) reconciles very closely with HMRC's published data as we show later in the blog. The Total NI figure from the NI Fund accounts is 98% accounted for by direct NI Contributions, the balance being "compensation for statutory recoveries" and a few other bits and bobs - the assumption here is that the components used to calculate Total NI Fund Receipts are the same as those included within HMRC's definition of National Insurance Contributions - the reconciliation would suggest this assumption is sound.

  2. To be absolutely correct: different percentages are applied to different classes of contribution (see Social Security Administration Act 1992), so changes in the contribution mix can lead to slight changes in the overall average contribution percentage. There is also a mechanism contained within that Act which would allow this allocation to be varied at the whim of the Treasury:  "The Secretary of State may, with the consent of the Treasury, by order amend any of [the allocation percentages] in relation to any tax year, by substituting for the percentage for the time being specified in that paragraph a different percentage".

  3. As the NI Fund accounts explain: "the Social Security Act 1993 allows for money provided by Parliament to be paid into the NIF via a Treasury Grant if HM Treasury considers it expedient to do so". 

    The accounts go on to explain: "The report on the Up-rating Order published by the Government Actuary in January 2021 projected an increase in the balance of the Fund in the year ended 31 March 2022, and also projected that no Treasury Grant is likely to be required in that year in order to maintain the Fund above the targeted minimum balance of 16.7% of benefit expenditure. However, as a contingency, under section 2(2) of the Social Security Act 1993 (c.3), HM Treasury Ministers have made provision for a Treasury Grant of up to 17% of estimated benefit payments. This equates to a provisional facility of £17.5 billion."

    The last Treasury Grant was in 2016, when £9.6bn was used to top-up the GB Fund balance

  4. Previously Incapacity Benefit

  5. "Christmas Bonus is a tax-free payment of £10 paid to people in receipt of a qualifying benefit during the relevant week, normally the first full week in December"

  6. From the Social Security Administration Act 1992:

    "From the national health service allocation in respect of contributions of any class there shall be deducted such amount as the Secretary of State may estimate to be the portion of the total expenses incurred by him or any other government department in collecting contributions of that class which is fairly attributable to that allocation, and the remainder shall, in the hands of the Secretary of State, be taken as paid towards the cost—
    (a)of the national health service in England;
    (b)of that service in Wales; and
    (c)of that service in Scotland,in such shares as the Treasury may determine.

  7. Fraser of Allander Blog:  "If the UK Government funded its social care plans by increasing NICs, the funding implications are quite straightforward. The tax increase (whether to employee or employer contributions, or to the self-employed) would apply in Scotland. The Scottish budget would benefit from a Barnett consequential as a result of the increased spending in England. A £10bn increase to spending on social care in England would result in approximately a £1bn increase to the Scottish block grant.

    As is the case with income tax, the NICs raised in Scotland from an increase in NICs may not fully cover the sum of the additional Barnett consequential that flows to Scotland. This is seen as ‘fair’ in the context of a tax that is ‘pooled and shared’ across the UK."

  8. This Institute for Government example shows £12bn of additional NIC allocation would result in a £1.1bn increase in Scotland's Barnett consequentials, £0.7bn for the Wales and £0.4bn for NI - a rounded total of £2.2bn.

    Applying the relevant population share figures to the £12.0bn we get £1.16bn, £0.67bn and £0.40bn respectively - a total of £2.2bn. I think we can safely assume that the minor difference in the presented figure for Scotland is merely a function of rounding by the IoG (this often happens - to keep the total right, people sometimes use a bit of poetic licence when it comes to rounding).

  9. Scotland's "money in" = £54,401m of National Insurance payments and £1,906m of contribution to the Barnett consequential (via other taxes) = £56,307.    

  10. Confusion can arise from the fact that the DWP figures cover GB only (because the Northern Ireland Executive administer and report pensions separately) and also because the NI Funds report the (State pension) Christmas Bonus as a separate line-item. Note also the DWP figures and the National Insurance Fund figures do include overseas pension payments.

  11. The 8.6% figure is sometimes (including by me in the past) mistakenly quoted as 8.8%.  This is because when filtering the supplementary-expenditure-database which accompanies GERS for "State pension", the figures that appear in the "UK" column relate to GB only, they do not include Northern Ireland (it appears the Northern Ireland State Pension figures are not split out from other Northern Ireland welfare payments)

  12. The supplementary-expenditure-database provided with GERS (which reconciles with the overall GERS figures) does include a consistent population share of overseas pensions, so this issue is limited to the "for information" Box 3.2 within the GERS report (ie. it doesn't affect the integrity of the total government spending figure used in the GERS deficit calculation). I have contacted the office of the Scottish Government's Chief Economist and they have confirmed that Box 3.2 does include this error (the State Pension line is intended to be just the "in Scotland" figure, so Scotland's share of overseas pension payments should not be included). For our purposes, we are interested in Scotland's total pension payments which should include a population share of overseas payments, as included within the "Share of benefit spending outside UK and corporate spend" line in that table. The fact the State Pension figure drops between 2018 and 2019 really should have been a warning that something was up:

    Our reconcilaitions also highlight a couple of relatively small differences in stated NI figures - but these are not material to our conclusions

  13. This is not a surprising finding. By looking at a ring-fenced sub-set of tax and spend (covering c.15% of Scotland's total Public Sector Expenditure) we are seeing a similar picture to that we see when we look at the total tax and spend numbers: Scotland benefits directly from the UK's system of pooling and sharing because Scotland receives a higher percentage of spending than its contribution to revenue.

    Over the last five years: 

    • This analysis shows Scotland accounted for 8.6% of UK public spending driven by the pooling of National insurance while generating just 8.0% of National Insurance receipts (and related other tax contributions) - it put in less than it got out.

    • GERS figures show Scotland accounted for 9.2% of UK public spending while generating just 7.9% of tax receipts - it put in less than it got out.

    The fact that the relative scale of Scotland's benefit is lower for this ring-fenced sub-set of all tax and spend is not surprising. The majority of spending considered here relates to the state pension and other contributory benefits where the same policy is applied UK-wide - Scotland's greater share of spending is therefore entirely explained by greater like-for-like need; there is no policy difference driving the higher spend (as there will be in devolved expenditure areas). 

  14. We can now fully explain why Rideout's interpretation of the 2021 figures he's used is just wrong:

    He is correct to use £11.5bn for Scotland's NI contributions, but he missed £1.3bn of benefits Scotland gets back - so rather than the £0.5bn surplus he claims, Scotland benefitted from sharing in the UK's pooled NI system by £0.9bn in 2021 alone:

    1. When he quotes £8.5bn for State Pensions he is only quoting the in Scotland figure, so he's missing £0.3bn for Scotland's population share of overseas pensions (see table in note 12).

    2. What he claims on the Zoom call is £2.5bn of "other benefits" is in fact £3.0bn, so he's missing £0.5bn of benefits. I honestly have no idea where he gets his £2.5bn from: the lowest figure I can imagine him getting would be if he took a population share of all non State Pension NI fund payouts, but that would be only £0.7bn -- then even assuming he made the "low-side" mistake of taking the same share of Scotland's NI payments to NHS Scotland as for the GB NI fund, that would be £2.2bn, giving an "explainable mistake" total of £2.9bn

    3. I imagine he has not noticed the £5.7bn surplus retained in the NI Funds in 2021, so he will have missed Scotland's £0.5bn population share of the movement in the NI Funds

  15. This analysis suggests that Scotland might struggle to justify that claim given it has historically been a consistent net beneficiary of the system - but there would be a lot of noise if we ever came to splitting the UK's assets on separation, and a blanket "population share" assumption seems likely

Saturday, 12 February 2022

Independence by Gaslight: Pensions

The SNP appear to have decided they would try to use the payment of state pensions in an independent Scotland as a bargaining chip in negotiations with the rest of the UK if Scotland were to secede.

Perhaps now realising how calamitous this strategy would be, senior SNP figures are already trying to deny their own on-the-record comments and suggesting that this is all some concocted unionist scare tactic - so part 1 of this blog offers a summary timeline of exactly how the SNP have communicated on this topic in recent weeks. 

Part 2 uses the full transcripts of each of the SNP statements referred to in part 1 to a/ allow people to challenge the summary interpretation if they so wish and b/ to allow us to detail precisely where and why those statements were misleading, confused or simply wrong.

Some of the more common myths and misdirections not covered elsewhere in the blog are dealt with in the Appendix.

Part 1: The SNP's State Pension U-turn

There is a lot of SNP verbiage to be processed here and recently some nationalists have started claiming "that's not what was said" - so the below timeline summarises what was said. I provide links and fully annotated transcriptions of each interview in Part 2.

14/12/2021:  Ian Blackford (leader of the SNP in the House of commons) was asked during a podcast what would happen to State Pensions post independence and his response was unequivocal: 

"Absolutely nothing! [...] that committment to continue to pay pensions rests with the UK Government"
18/01/2022: Asked during the same podcast series whether she agrees with Blackford's statement on pensions, Kate Forbes (Scotland's Cabinet Secretary for Finance and the Economy) replied:
"Well I wouldn't dare disagree with Ian Blackford, the expert on all things pension, so I would agree with him."

02/02/2022:  Peter MacMahon of ITV News sought to confirm Blackford's position by asking him:
"You've said the UK Government will have to pay pensions in Scotland on independence - that's a complete reversal of the SNP policy in the 2014 referendum."

Blackford was customarily long-winded in his response, but he did not challenge MacMahon's interpretation, he merely sought to justify it.

03/02/2022:  During FMQs, Conservative MSP Murdo Fraser asked the First Minister a similarly direct question:
"Is it really now the SNP position that pensions in an independent Scotland would be paid by tax payers in England?"
Rather than take the opportunity to deny that this was now the SNP's position, Sturgeon appeared to confirm it. In the process, she misrepresented evidence given by former Pensions Minister Steve Webb in 2014 and made a sweeping observation that "UK liabilities and assets including those related to pensions will be subject to negotiation."

06/02/2022:  Requests from the press for comment were responded to by Sturgeon's offical spokesman (extracts were quoted by the press eg. here and here);
"Pensions in an independent Scotland will be paid by the Government of an independent Scotland, but the contribution towards that, the cost of meeting that, will be partly met by people paying into the UK pensions pot pre-independence ... That money doesn't get lost, it gets paid back or paid out of the pot. Pensions will be delivered in an independent Scotland by the Government of an independent Scotland but there will be historic contributions made into the UK pot that are owed from that UK side as part of what is paid out"
So by this point Blackford has said that the committment to pay state pensions in an independent Scotland "rests with the UK government", Sturgeon at FMQ's has declined the opportunity to deny that this is now the SNP's policy (instead choosing to make sweeping statements about negotiations around "assets and liabilities" and to misrepresent former Pensions Minister Steve Webb's on-the-record views); Sturgeon's official spokesman has stated that the cost of meeting the state pension in an independent Scotland will be met partly by historical NI contributions, based on what he repeatedly refers to as a UK "pensions pot".

As we will come on to explain in Part 2: the state pension is managed on a pay-as-we-go basis, today's taxes pay today's pensions (and it was ever thus) and so there is no state pension pot worthy of the name; both Steve Webb and (more importantly) the current pensions minister Guy Opperman are on the record confirming that the state pension in an independent Scotland would not be funded by UK tax payers; the statements made by Blackford, Sturgeon and her spokesman are, to be generous, equivocal in a way the 2014 White Paper and the SNP's 2018 Growth Commission were not (both assumed taxes raised in an independent Scotland would fully fund the Scottish state pension); there is no "historic liability" to negotiate about, the only question is how future pensions liabilities will be funded.
09/02/2022:  Given the widespread confusion and bemusement about the SNP's apparent new policy, the BBC's Glenn Campbell offered Sturgeon the opportunity to "clarify the SNP's position on the state pension if Scotland were to become an independent country".  

A visibly rattled First Minister huffily suggested that "I don't need to clarify" before (eventually) conceding that "On an ongoing basis it would be for the Scottish Government to fund Scottish pensions" only to immediately muddy the waters again by adding "but in terms of how we take account of historic assets and liabilities [related to pensions and NI contributions] that would be a matter of negotiation".

So Sturgeon conceded that an independent Scotland would fund the Scottish state pension (appearing to directly contradict Blackford's earlier remarks) but then went on to imply that a material contribution to that cost would come from negotiations around "historic assets and liabilities" related to past National Insurance contributions. When she was offered the opportunity in that same interview to confirm that she knew there was "no pension pot to be carved up", she didn't take it.

The First Minister's "matter of negotiation" caveat here is very significant. The only way that the Scottish Government could use the funding of the state pension in an independent Scotland as a lever in negotiation would be to threaten not to pay it (or to make the payment of it conditional on some other asset ot liability concession, which is effectively the same thing). 

So at the time of writing that's where we are, which is frankly a remarkable place to be.

Part 2 deals with the myriad arguments, misdirections, red-herrings and confused terminology deployed in this debate and explains why both practically and morally there really shouldn't be any debate about this: if a chunk of the UK's tax base secedes, it takes with it the obligation to continue to fund the state pension that tax base supports; any "negotiation around assets and liabilities" (beyond a share of the relatively trivial National Insurance fund) would be a non-starter.

That said: if you can't be bothered to trawl through all the SNP's claims and the related counter-arguments, all you really need to do is read what the current Pensions Minister Guy Opperman has said in response to those claims:

Part 2: The detailed arguments, within the context of the SNP's verbatim claims

14/12/2021: Blackford's Initial Claim

This all started with comments made by Ian Blackford in a Scotland's Choice Podcast. The ever-diligent Sam Taylor [@staylorish] listened to the podcast a few weeks later and tweeted about a remarkable claim that Blackford made. When asked what would happen to State Pensions post independence, Blackford asserted the following:

"Absolutely nothing! So, the important point is that those that have contributed while we have been part of the UK have an entitlement for a pension. Indeed that was made - um - that was made clear by the Chief Secretary to the Treasury at the time of the independence referendum in 2014. So that commitment to continue to pay pensions rests with the UK Government.  That's no different to a UK citizen that chooses for example to live in Canada or Spain or France or anywhere else - that commitment to receive your pension remains in place, that's an obligation of the UK Government and what will happen going forward it will be the obligation of the Scottish Government to look after pension entitlement from the period for those that are working and making pension contributions in the period post independence."
[This is almost entirely nonsense, but he repeats these claims in his interview below, so we'll address them there]

18/01/2022: Kate Forbes Backs Blackford's Claim

Asked in a subsequent edition of the same podcast series whether she agrees with Ian Blackford's comments, Scotland's Cabinet Secretary for Finance and the Economy replied:

"Well I wouldn't dare disagree with Ian Blackford, the expert on all things pension, so I would agree with him."

02/02/2022: Blackford Doubles Down

Blackford was pressed on this claim by Peter MacMahon of ITV News [at 13 mins in]: "You've said that the UK Government will have to pay pensions in Scotland on independence - that's a complete reversal of the previous SNP policy in the 2014 referendum.":

"This was an issue that was discussed in 2014 ... let's be clear on this, because the Chief Secretary to the Treasury made it clear at that point that the UK retained an obligation to pay pensions to those that had paid National insurance ..."

[This repeated assertion is simply untrue. The Chief Secretary to the Treasury at the Time was Danny Alexander and he made no such statement. I will, as ever, happily correct this blog if anybody can provide evidence that he did.]

"... that's a, a matter of precedence .. <interviewer interjects to remind Blackford 'and the Scottish Government's White Paper said the Scottish Government, on independence, would take responsibility for pensions, and you're saying they won't anymore'> ... the Scottish Government will take responsibility to look after its pensioners, let's not forget <interviewer interjects 'but not pay them' - Blackford ignores that statement> ... let's not forget we have the lowest state pension in Western Europe at the moment, our pensioners are being short changed ..."

[Blackford's use of the phrase "short-changed" is particularly disingenuous, as it implies that somehow people are not getting their dues, which is patently not the case. His "lowest state pension in Western Europe" claim is false and one that the SNP have a track-record of repeating. When asked to back it up they always point to an out-of-date OECD report (or a parliamentary briefing which referenced the same report) rather than the latest OECD report which could not be clearer in showing the UK ranking above (amongst others) Norway, Sweden, Germany and Ireland1]

" ... it's Westminster that's removed the triple lock"

[It's true that the triple-lock has been suspended - but the SNP's own Sustainable Growth Commission abandoned the SNP's commitment to the triple-lock after independence as long ago as 2018, as pointed out by Sam Taylor here]

"The point is that it's an obligation on the UK Government to meet the committment to pensioners that have paid National Insurance contributions; they have paid for the right to receive that pension ... "

[The wording here is highly misleading. The state pension is technically a welfare payment funded by current taxes. The UK's Whole of Government Accounts (WoGA) are very clear about this: "the state pension paid to the general public [..] is included within overall expenditure and recorded as welfare spend". This means people have no more "paid for the right" to receive a future pension than they have "paid for the right" to receive future social security payments or healthcare.  Nobody would seriously suggest that the UK Government's obligation to provide future welfare support in Scotland would survive secession, and yet that is effectively what Blackford appears to be arguing for. It's a risible idea; rUK tax payers would obviously not accept continuing to fund an independent Scotland's welfare state.]

"Now you can argue about the mechanism as to how that's transferred and that will be debated, but it's right that the UK Government meets its committment to pensions regardless where they are."

[It's not clear what the "that" is Blackford wants transferred here. If it's past NI contributions, "that" is just Scotland's share of the NI fund (which we'll come on to show is a relatively trivial matter). If "that" is the obligation to look after the future welfare of Scottish citizens, it is extraordinary that Blackford could be suggesting that would be the responsibility of anybody other than the government of an independent Scotland. Healthcare is also funded out of current taxes; having paid taxes all my working life, I expect free healthcare in my dotage - but I don't think anybody's arguing that the UK Government would be expected to fund an independent Scotland's health service?]

"If you or I as UK citizens go and live in another European country, then our right to that UK pension remains; Scottish pensioners have that right ..."

[This is simply a repetition of the ex-pat fallacy. Put simply, you can't take away 8% of the UK's tax base and not expect to take with it an equivalent share of the pensions obligations that tax base funds. It is true that UK state pension entitlement is currently based on past NI contributions (not nationality), but if the constituent part of the UK where those NI contributions were made is no longer part of the UK, it would be logically inconsistent for the remaining UK to still honour that commitment.
To help understand why people in a seceded Scotland would not be the same as UK expats, consider that expats have the right to vote in UK elections. Again, I don't think anybody is suggesting that independent Scots habitually resident in Scotland would get to vote in UK elections; they wouldn't because they would not be the same as expats. Or alternatively try the following thought experiment: if England's 84% of the UK's population seceded, it would be patently absurd and impractical for the remaining 16% of UK tax payers to fund an independent England's state pension - and yet that would be to apply the same expat fallacy logic, just at a larger scale.]
"they have paid National Insurance over a long period to get that; that will remain." 
[His wording about paying NI contributions over a long time and "that will remain" seems to imply that money has gone into a pot. As we've already covered: it hasn't, it's been used to pay current pensions.]
The interviewer rightly picks him up on this: I'm sorry, but you know National Insurance only covers current pensions... 

"No ... it's .. you're paying National Insurance as an entitlement to a future pension, that's the whole point of the principle - you pay into a National Insurance Fund - OK the UK is then responsible for the disbursements of that and it covers cashflow for a certain period - but that's a right to a UK pension, there's no ifs, there's no buts about that."
[Blackford surely knows the interviewer is correct, so his knee-jerk "No" is revealing. I suspect he realises he's getting into trouble at this point and perhaps that's why he goes on to correctly describe the National Insurance fund. That "certain period" he refers to is a minimum of 2 months and typically 4 - 5 months, so the only asset that would be included in any negotiation is a few months of NI funded welfare payments2.]

Give him his due, Blackford is an olympic-standard bloviator and his overall response above is an effective way of avoiding actually answering the question - so it's worth reminding ourselves of the question put to him at the outset by the interviewer: "you've said the UK Government will have to pay pensions in Scotland on independence - that's a complete reversal of the SNP policy in the 2014 referendum." Judge for yourself, but in all of the word-salad he's dished up here I can't find anything that sounds like "No, that's not what I meant".

03/02/2022: Sturgeon Backs Blackford

During FMQs, Murdo Fraser MSP asked the First Minister: "Is it really now the SNP position that pensions in an independent Scotland would be paid by tax payers in England?"

"I think he should pay more attention to the UK Government's position on this, he might find it gives him a bit of a shock - let me set out, let me set out the position ... <playing to the gallery> the Tories are really really nervous about this argument, you can feel the discomfort coming from them because they know, when the people of Scotland get the chance to escape Westminster governments and take our future into our own hands they are going to say Yes to independence </playing to the gallery> ... "
[Although Sturgeon has essentially said nothing by this point, note that she is not denying Fraser's interpretation of the SNP's position, she has merely hinted that the UK Government agrees with it] 
"... when, when Scotland votes for independence, as was the case in 2014, the distribution of existing UK liabilities and assets including those related to pensions will be subject to negotiation and Scotland will fully pay its way in that, but the key point here is ..."

[So we get some platitudes about everything being a negotiation and a reference to assets and liabilities related to pensions more broadly, before she finally makes her substantive point ...] 

"... for those in receipt of pensions and it is what the Minister for Pensions at the time in the UK Government Steve Webb confirmed, that people with accumulated rights would continue to receive the current levels of State Pension in an independent Scotland ..."
[Sturgeon is misrepresenting Steve Webb's stated position here by quoting an out-of-context snippet from a lengthy and frankly rather muddled oral submission Webb gave to the "Scottish Analysis: Work and Pensions" committee in 2014. Clearly aware that his remarks had been potentially misleading, Webb subsequently wrote to the committee to clarify his position and ensure that the written record correctly reflected his view. That is why the words Sturgeon quotes do not appear in the committee's report (or in any other written government record I can find) - but the relevant words from Webb's letter do: "While there are to be no pre-negotiations, 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 pensions 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."]
"- people will notice no difference,..."
[Decide for yourself if she is denying Murdo Fraser's suggestion by this point - while she has not actually said who would be funding the state pension, I think it's fair to say she has strongly implied that it would at least in part continue to be the UK Government]
"... well perhaps the difference they might notice is that an independent Scotland might be able to improve the level of pensions, rather than have, as the UK does, one of the lowest pension levels in the whole of the developed world"

This finishing flourish simply repeats Blackford's false claim about the level of the UK state pension (although it's expanded now to "in the whole of the developed world" rather than just Western Europe) while making a completely unsupported assertion that an independent Scotland would somehow be able to increase the state pension. This claim flies in the face of her own Sustainable Growth Commission's recommendation of fiscal austerity and is surely incompatible with an independent Scotland's putative ambition to satisfy the EU's fiscal rules as outlined in Chapter 17 of the Acquis Communautaire]

As with Blackford's rhetoric, its worth pausing to remember the question asked: "Is it really now the SNP position that pensions in an independent Scotland would be paid by tax payers in England?".  Again you can judge for yourself, but at no point does she come close to saying "No, that's not our position".

06/02/2022: Sturgeon's official spokesman cites the mythical "pension pot"

Sturgeon's official spokesman subsequently made the following statement in response to press enquiries:

"Pensions in an independent Scotland will be paid by the Government of an independent Scotland, but the contribution towards that, the cost of meeting that, will be partly met by people paying into the UK pensions pot pre-independence ... That money doesn't get lost, it gets paid back or paid out of the pot. Pensions will be delivered in an independent Scotland by the Government of an independent Scotland but there will be historic contributions made into the UK pot that are owed from that UK side as part of what is paid out"

[As we have already discussed, there is no state "pension pot". An NI fund exists which holds a few months' working balance of NI funded welfare payments, but nobody could seriously suggest that could be described a state "pension pot".]


09/02/2022: Sturgeon starts to row back, but further muddies the water 

Asked by the BBC's Glenn Campbell "Do you want to take the opportunity to clarify the SNP's position on the state pension if Scotland were to become an independent country: who would pay for those pensions on day one?" a clearly grumpy Sturgeon responded:

"I don't need to clarify, the position is as it was set out in the 2014 White paper, there would be a negotiation on all sorts of things when Scotland becomes independent about assets and liabilities and that would include the historical position in terms of, you know, National Insurance contributions paid by Scots and that would all be taken account of and that would influence the starting position of an independent Scotland, thereafter <interviewer tries to clarify that there isn't a pension pot> ... you might, you might get the answer if you didn't interrupt me in the throes of giving the answer eh after that of course it's for a Scottish Government to be responsible for the payment of pensions but the historic liabilities and assets around pensions as around other things will be a matter of negotiation at the point of independence."
[So her main point appears to be "there will be negotiations around" "historic assets and liabilities" and she references "National Insurance Contributions paid by Scots"] 

The interviewer presses her: but do you accept there isn't a pension pot to be carved up?

"em - there are assets and liabilities including pensions that of course will be the subject of negotiation when Scotland becomes independent, you might want to <interviewer points out pensions are paid out of current taxes> that is the case .. but the i mean you might want to look at the Fraser of Allander - er - comments on this just recently when they talk about the fact that if ... access to pensions in the UK is not based on citizenship it is based on National Insurance contributions eh so there will be a negotiation around all assets and liabilities."
[So rather than accept that there is no "pension pot" she repeats her reference to "negotiation around all assets and liabilities" and "National Insurance contributions". She references this Fraser of Allander paper which talks about the need for negotiations, without drawing any conclusion as to whether the UK Government would allow UK tax payers to fund an independent Scotland's pensions or whether appeals to the expat fallacy would carry any weight.] 

The interviewer tries again: So how much of the £8.5 billion - at day one of independence, how much of the £8.5 billion do you think the UK Government should or would pay?

"On an ongoing basis it would be for the Scottish Government to fund Scottish pensions ..."

[This seems like a breakthrough: the Scottish Government is to fund Scottish pensions, which would appear to directly contradict Blackford's earlier assertions. Except then there's a "but" ...]  

.".. but in terms of how we take account of historic assets and liabilities that would be a matter of negotiation. I would encourage you to go back and look at the 2014 White Paper that set this out and, the point I'm making is that <interviewer: it didn't mention the UK paying> the 2014 White Paper set out the position of the Scottish Government and what I'm saying to you is that position hasn't changed"

[So here we are again with the "historic assets and liabilities" and perhaps now is the time to pin down what these actually are. The meaning of words matters, so I make no excuses for the accounting pedantry that follows.
There is no "historical liability" associated with the state pension, there are only future liabilities; pensions in the past have already been paid, we are concerned here with paying pensions in the future. We've seen that the way the UK's pay-as-we-go state pension system works is that future pensions are paid out of future taxes, so it seems obvious that a future independent Scotland's pension liabilities would be met out of a future independent Scotland's taxes (assuming sufficient taxes were available).
When it comes to "historical assets" (aka "assets") there is just one related to past NI contributions, and that's the previously discussed National Insurance Fund. Scotland would of course expect a share of the NI Fund in any separation negotiation, but as we've already seen this represents just a few months' worth of payments because it is merely a working capital account, not a "pension pot"3

Sturgeon's suggestion that "nothing has changed" does not bear scrutiny. As Blair McDougall has rightly highlighted, it's informative to contrast her answer above with how she answered questions on this topic in 2014:

"The quick answer to your question is yes, we would guarantee all of the accrued pension rights for people in Scotland [..] we currently pay for state pensions, there's no money fairy sits in Westminster [..] our taxes, out National Insurance contributions fund these things already"

Or read what the 2014 White Paper had to say on the topic:

"for those people living in Scotland in receipt of the UK State Pension at the time of independence, the responsibility for the payment of that pension will transfer to the Scottish Government"
Hilariously, there is at least one nationalist blog who claims the wording above refers to administration of the State Pension but not the actual funding of it. The ridiculousness of this interpretation is quickly exposed by observing that no saving (versus the £8.5 billion state pension cost in GERS) was included in either the 2014 White Paper or the SNP's 2018 Sustainable Growth Commission report. 

Appendix: Some Common Confusions and Misdirections

1. But the state pension is a legal entitlement; if you've built an entitlement by making historical NI contributions, it doesn't matter where you live  

Somebody better qualified than me should write this up, but I'm pretty confident that we can say "it's more complicated than that". 

Take for example the failed legal challenges launched by the WASPI women (women born in the 1950s whose pension age has been raised to 66) - they have learned the hard way that they don't have a legal entitlement to a state pension at the age of 60. The court of appeal concluded:

"The relevant test was whether the measures were “manifestly without reasonable foundation”. The Court of Appeal held that the Divisional Court had been correct to approach the issue on the basis that this legislation operated in a field of macro-economic policy where the decision-making power of Parliament was “very great”"

I think it is reasonable to suggest that 8% of the tax base which funds the state pension seceding from the UK would very obviously count as "reasonable foundation" to not keep paying the state pension to that seceded nation's pensioners.

2. Steve Webb, the then UK pensions minister, told a Westminster committee in 2014 that anyone who “accumulated rights” for pension cash would be entitled to the money after independence. There was absolutely no risk to the money.

The statement above is taken directly from the the National newspaper and is egregiously misrepresentative of Steve Webb's evidence to that committee. They appear to be making reference to Webb's lengthy and frankly rather muddled oral submission given to the "Scottish Analysis: Work and Pensions" committee in 2014 (although even then, he certainly didn't say there was "absolutely no risk to the money").  Aware that his oral remarks could be misconstrued, Webb subsequently wrote to the committee to clarify his position and ensure that the written record correctly reflected his view. The committee's report includes the following relevant words from Webb's letter:

"While there are to be no pre-negotiations, 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 pensions 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."

Any possible doubt as to the official UK Government position has been extinguished by recent statements made by the current Pensions Minister, Guy Opperman:


3. But Alex Salmond had a letter sent to one of his constituents that said "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."

This letter was sent by some poor "pension service customer adviser" and was clearly wrong. A Freedom of Information request prompted the Department for Work and Pensions to confirm without equivocation that the letter in question was “misleading and factually incorrect”:

I can confirm that an investigation was carried out and concluded that the statement ‘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.’ was misleading and factually incorrect. 

At the time of the letter the correct statement was ‘In the event of independence, State Pensions and benefits in Scotland for its citizens would be the responsibility of a Scottish Government. Therefore, any questions about entitlements in an independent Scottish state should be directed to the Scottish Government.’ 

4. But GERS shows Scotland's NI payments are greater than our State Pension costs, so there's no issue

This argument has been promoted on Twitter by the preternaturally obtuse SNP MP Angus MacNeill, endorsing this widely "liked" tweet by, Tim Rideout (Lothians Member of the SNP Policy Development Committee):

There are so many layers of daftness and inconsistency here it's hard to know where to start;

  1. He mentions leaving "£2,959m surplus for other benefits" - the headline figure for other benefits is £12,903m (£21,420m - £8,517m). But of course that isn't the whole picture, because a proportion of National Insurance resceipts never reach the NI fund but are redirected to the National Health Service, and other taxes are used to pay some of the other elements of Social Protection (which takes us to point 2.)

  2. It is meaningless anyway to take one source of taxation and compare it to one line of spending because we do not (in any meaningful way) have hypothecated taxes in the UK. NI is conceptually used to pay not just pensions but also to pay other contributory benefits as well as contributing towards NHS funding - but as Merryn Somerset-Webb rather neatly summarises: "This brings us to the very idea of a hypothecated tax. We don’t have those in the UK. Your NI does not go on the NHS – it’s just a misleadingly-named extra income tax. Your road tax does not go on the roads. Your air passenger duty does not go on emissions mitigation."
  3. The only way to assess the extent to which Scotland can afford an item of public spending is to consider the totality of taxes raised and the totality of public spending (and then deciding what level of deficit is sustainable). The GERS figures Rideout is quoting from show Scotland's Total Public Expenditure exceeding Scotland's Total Revenue by £36.3 billion or 22.4% of GDP
  4. The Table Rideout refers to shows that Scotland is responsible for just 8.0% of the UK's National Insurance Contributions but the supplementary data - expenditure database shows us that Scotland receives 8.8% of the UK's State Pension payments - so in fact we "get more out than we put in" when it comes to NI and the State Pension (but per 1. above, we get a lot more out than just the State Pensions) 
  5. If this data did show that Scotland can somehow easily support the current state pension, why all the fuss?



1. OECD pensions data 

What matters here is that the SNP's claim, on their own terms, is simply not correct if we use the latest data. We could easily devote an entire blog to how to compare state pension entitlements between different countries. The apparent jump in the OECD's treatment of the UK relates to the fact that the auto-enrolment scheme has passed the 85% threshold required to qualify as quasi-mandatory. The OECD's treatment is consistent across countries and represents their view of the best way to compare pensions entitlements on a consistent basis. To go any further, one would have to start looking at the entirety of lifetime tax-burdens and factor in differences in (eg) the costs of health and social care throughout citizens' lifetimes.  

2. The National Insurance Fund's accounts are helpfully informative:

"Current practice is to aim to maintain the level of the Fund at a working balance of at least 1/6th (16.7%) of projected annual benefit expenditure [..] The National Insurance scheme is financed on a pay as you go basis with contribution rates set at a level broadly necessary to meet the expected benefits expenditure in that year, after taking into account any other payments and receipts, and to maintain a working balance [..] The minimum working balance for 2020 to 2021 was estimated at £17.9 billion, being 16.7%  of estimated benefit expenditure, as stated in the report on the Social Security Benefits Up-rating Order published by the Government Actuary in January 2020."

So the NI fund is just a working balance, it cannot in any meaningful way be described as a pension pot (as the term "pension pot" implies a cumulative holding of banked contributions and any associated returns on those contributions, from which future pension payments would be funded).

 "The National Insurance Act 1946 and National Assistance Act 1948 established the modern welfare state that continues today"

This timing is significant, because at the time it raised the question of whether or not soldiers returning from WWII would be entitled to a state pension (having not made past NI contributions). The decision to pay current pensions out of current taxes makes perfect sense within this context, because it was the only way to make a pension immediately available. 

As a point of interest, although dominated by the state pension, the NI fund is also used to manage other contributory benefits as listed below

Further helpful detail on the background to and operation of the NI fund can be found here

3. To put this in context: the NI Fund at the end of 2021 held £42 billion compare to total UK assets per the March 2019 Whole of Government Accounts of £2,099 billion or gross debt at the end March of 2021 of £2,223 billion.]