The reality of pensions in a Scotland that has voted for independence
OPPONENTS of Scottish independence have put the pedal to the metal with their most recent misinformation campaign, stirred by conservative and former Better Together director Blair McDougall.
McDougall took to social media to claim that independence supporters wanted Scotland to be “the only country in the world that wouldn’t have to pay for pensions” by making English, Welsh and Northern Irish taxpayers pay for it. He further claimed that this was a change of policy because the Scottish Government’s position in 2014 was to take full responsibility for funding pension payments post-independence.
It sounds like an absurd policy position to make the rest of the UK pay for Scottish pensions. It’s also not true. Rather than engage in bad faith political discourse, we will simply stick with the facts.
The Scottish Government’s 2014 White Paper makes clear that the Scottish state would fully take over the administration of pension payments. This includes administering UK state pension payments to Scottish residents who have paid National Insurance contributions to the UK Treasury. It does not suggest that an independent Scotland would drop the UK’s obligation to pay Scottish residents their pension.
McDougall, having twisted the original policy, is now outraged that the UK would need to meet their pension obligations. Other Unionists have further suggested that Scottish residents would lose any entitlement to their UK state pension payment post-independence due to losing their citizenship. This was repeated by unionist commentator Alex Massie in his article in The Times.
This suggestion is false.
Let us consider the UK Government’s position on pensions and UK citizenship, specifically their “Scotland Analysis” paper in 2014. In the paper the UK Government stated “it is likely that there would be no barriers to holding both British and independent Scottish citizenships”. This position has not changed. If a large proportion of Scots did apply for dual citizenship, then there would be no serious grounds to deny them their pension without the issue becoming a legal nightmare.
Even if some Scots do not obtain dual citizenship post-independence, they would still be entitled to their pension from the UK Government. The UK has already made a legal obligation to pension payments regardless of where you live, stating on their website: “You can claim State Pension abroad if you’ve paid enough UK National Insurance contributions to qualify.”
This was a point that the Fraser of Allander Institute pointed out, a day before Alex Massie's article was published.
The UK Government also confirmed this position to the BBC back in 2014. This position could not be clearer, and anyone suggesting otherwise is either misinformed or is intentionally spreading misinformation.
If the UK desired to punish Scottish pensioners, this rule would also have to apply to the other pensioners living outside of the UK. Stripping potentially millions of people of their right to their pension would result in immense political backlash, so it is no wonder that not even the Conservatives are taking the idea seriously.
So let us return to reality and look at the actual opportunities and challenges an independent Scotland would have with pensions.
First things first – an independent Scotland will fully fund state pensions for all pensioners resident in Scotland at the moment of independence. These pensions will be paid in the new Scottish currency. From the point of independence, the Scottish Government would have the power to directly increase pensions payments to residents. Meanwhile, Scots who have contributed enough through National Insurance to the UK Treasury would still receive state pension payments from the UK Government.
This could change if the Scottish Government decided not to follow up on the UK’s pension liabilities, in return for the UK Government dropping Scottish liabilities. This was also suggested by the Fraser of Allander Institute, also accepting it is "both more complex and more uncertain than either ‘side’ might claim."
What of private pensions that are paid in Sterling? This is more complex, as the Scottish Government cannot force private employers to pay pensions at a fixed value to the Scottish currency. Therefore, it will largely come down to how a Scottish currency operates within currency markets.
If we take the word of Unionists that an independent Scotland would have a weaker currency compared to the pound, then this is good news for Scottish pensioners. This means pensioners would get more Scottish currency for the Sterling they receive from private employers, leaving them better off. It would not be difficult for Scottish pensioners to be better off considering the UK offers the worst basic pension in the developed world, worth a scandalous 21.6% of final earnings.
Private employers could also offer to redenominate pensions to the new Scottish currency on current contracts, as would most likely be done by mortgage providers to protect their books. However, no one can say for certain. Either a Scottish currency is stronger in financial markets, and certain Scottish pensioners are worse off, or a Scottish currency is slightly weaker than the UK pound, and thus certain Scottish pensioners are better off. Not exactly the doomsday scenario presented by Unionists, is it?
In the scenario a Scottish currency is strong in financial markets, leaving pensioners worse off, there would be nothing stopping the Scottish Government to develop social security policies to support them. For further discussion on this topic I would suggest readers follow the work of Jim Osborne from the Scottish Banking and Finance Group.
Either way, McDougall may find it difficult to scare elderly voters when the status quo is offering them increasing energy prices, regressive tax hikes, out of control inflation, and an incompetent UK Government corrupt to its very core.