Scotland's Pensions Future: What Pensions Arrangements Would Scotland Need?

Scotland's Pensions Future: What pensions arrangements would Scotland need? Is the first of two ICAS report on the implications for pensions in an independent Scotland.

1 April 2013

The report's key findings are as follows:

  • Pension schemes operating between Scotland and the remainder of the UK would be classed as 'cross-border' under EU law if Scotland votes 'yes' (p 16)
  • EU solvency requirements (as currently interpreted) would have major cost and cash flow implications for employers with cross-border defined benefit and hybrid schemes as: 
  • pension liabilities would have to be fully funded at all times
  • underfunding would have to be rectified immediately rather than through a staged recovery plan 
  • annual - not triennial - actuarial evaluations would be necessary (p 17) 
  • The Government of any future independent Scotland should continue with existing UK arrangements for pension regulation in the early years of independence (pp 14 -16)
  • ICAS believes that a separate Scottish Pension Protection Fund would need to be established in the event of Scottish independence (pp 14-16)  
  • In the event of a 'yes' vote, agreement would need to be reached as to which Government would be responsible for the state pension entitlements of Scots built up prior to independence? (pp 9-10) 
  • Responsibility for the UK's public sector pension liabilities would also need to be established following a 'Yes' vote. Liabilities of £86 billion have already been identified as relating to Scotland, including £60 billion which are unfunded, but there are UK-wide public sector pension schemes where Scotland's share would need to be determined as part of Scotland's 'opening balance sheet'. (pp 11-13) 

On publication, David Wood, ICAS Executive Director, Technical Policy, said:

"This ICAS paper raises questions about the protection and solvency arrangements which an independent Scotland would need. For schemes in the private sector, which became cross-border schemes in the event of independence, addressing any underfunding would be a priority for both Scottish and rest of the UK employers.

"ICAS calls on the Scottish and UK Governments to engage with business, the pensions industry and the EU to minimise the financial impact on these schemes, their sponsoring employers and the people who have paid into the schemes.

"Both Governments have a duty to engage with citizens and other pensions stakeholders to prepare a way forward, in advance of the referendum, and agree transitional arrangements to be implemented in case of a 'Yes' vote."

Case study 

Alasdair is a retired member of ICAS living in Scotland who worked in Scotland his entire career. He receives retirement income from a number of different sources:

  • A UK state pension
  • Two defined benefit pensions from schemes sponsored by companies based in England which operate throughout the UK
  • Income from three annuities purchased from defined contribution pension pots paid via the Scottish operations of financial services providers headquartered in England

Alasdair asks: which Government would pay his state pension? 

Would a 'rest of the UK' Government retain responsibility, as his 'accrued' entitlement would have been built up prior to independence? If the Government of an independent Scotland acquired the responsibility to pay, agreement would need to be reached about whether assets would be transferred from the rest of the UK to Scotland in exchange for taking on this responsibility.

Alasdair asks: How would the creation of a new 'border' affect his pension?

The companies which sponsor Alasdair's defined benefit pensions would become cross-border schemes if Scotland became independent. These schemes are likely to be underfunded and making staged recovery plan payments. As things stand, any underfunding would need to be rectified immediately in the event of Scotland becoming independent. The continued solvency of the schemes would depend on the sponsoring companies' ability to do this.

It is increasingly common for people to have a number of sources of retirement income. Therefore people need confidence that any transition to an independent Scotland would not disrupt these payments.


  • Thought leadership
  • Pensions

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