The Scottish government has called for immediate talks with the European Commission and the UK government on the funding implications for Scottish coverage of UK-wide occupational schemes if the country votes to leave the UK in next year’s referendum.
Its proposals – ‘Pensions in an Independent Scotland’, published on Monday – highlight potential problems for UK pension plans with members in Scotland, which would then be classified as cross-border schemes, if they continued to operate as before.
The paper points out that the IORP Directive requires pension schemes accepting contributions from an employer located in another EU member state to be fully funded at all times.
It refers to a recent analysis from the Institute of Chartered Accountants of Scotland (ICAS), which said EU solvency requirements would have major cost and cashflow implications for employers with cross-border defined benefit and hybrid schemes.
In addition to the requirement to fully fund all pension liabilities, underfunding would have to be rectified immediately, rather than through a staged recovery plan.
The paper said: “The Scottish government proposes that discussions on this issue should start immediately, with a view to undertaking a full impact assessment and agreeing appropriate transitional arrangements.
“These arrangements would set out how a scheme that became cross-border at the date of independence would be required to adjust from its previous status as a UK scheme, and would provide much-needed clarity for employers and pension schemes across the UK.”
It said transitional arrangements of this kind had previously been implemented when the Directive was introduced.
The UK legislation had provided a three-year grace period for existing UK/Ireland cross-border schemes to reach full funding levels.
It also said it would be appropriate to allow a scheme with an existing recovery plan to be allowed to implement that plan in accordance with the period originally set for it, rather than require a shorter timescale.
Christine Scott, ICAS assistant director, said: “Employers and pension scheme trustees need information and time to make contingency plans for how any transitional arrangements will affect their schemes.
“Any solution to the potential cross-border under-funding issue will likely need the agreement of every EU member state, and ICAS now calls on the UK and Scottish governments to begin discussions with the European Commission.”
The government paper also included a commitment to uprate the basic state pension by the ‘triple lock’ (the highest of average earnings, consumer price index inflation or 2.5%) from 2016.
From 6 April 2016, new pensioners would receive a single-tier pension, similar to that proposed by the UK government, but starting at £160 (€190) per week.
The Scottish government would reserve judgement on raising the state pension age to 67 between 2026 and 2028 – as currently planned by the UK government – and establish an independent commission on the state pension age.
There would, however, be no changes to occupational and personal pension rights or accrued benefits, were Scotland to become independent.
The regulatory framework in an independent Scotland would be closely aligned with that in the rest of the UK.
Automatic enrolment would continue, and a Scottish equivalent of the National Employment Savings Trust would be established.
A BBC analysis of recent opinion polls suggests 40% of voters in Scotland favour independence, while 60% would opt to stay within the UK.