The UK government has published its views on how an independent Scotland would need to set up its own pensions system in a damning 111-page report.
The Department for Work & Pensions’ (DWP) paper sets out in lengthy detail the decisions, and costs, an independent government would need to tackle.
It covers the costs and complications of setting up a new regulatory infrastructure and the difficulties of setting up safe cross-border provisions, mimicking auto-enrolment, creating a new protection fund for defined benefit (DB) pensions and accounting for its share of public service pensions – to the tune of £100bn (€122bn).
The report crushes previous suggestions from the Scottish government that it could remain in the current Pension Protection Fund (PPF) through a cooperation agreement.
It said an independent Scotland would need to set up its own arrangement, and in doing so, establish how it would fund the body given the potential insufficiency of a levy structure in the smaller Scottish DB industry.
This has long been an issue in Ireland, a market of similar size, where it was deemed unfeasible to create a protection fund due to the lack of resource available.
The DWP also highlighted that an independent Scotland would need to fund a new regulator and regime, as well as decide whether to fund this through taxation or by a levy on participating schemes.
The government said Scotland’s desire to join the European Union would also subject it to the IORP Directive and its stringent requirements on cross-border scheme funding, which would encompass a large number of schemes and likely lead to further closures.
The UK government said an independent Scotland, in copying auto-enrolment, would face complications in funding the creation of a compliance regime and undergo the strenuous difficulties the UK did in setting up the National Employment Savings Trust (NEST).
The state-backed master trust was created and funded by a government loan, after lengthy negotiations with the European Commission, over state funding for a company operating in a private market.
The paper argues that Scotland would have to decide how to create an equivalent, an aim promised by the Scottish government, as well as conclude how to transfer Scottish members currently saving in NEST.
In conclusion, the paper said an independent government would need to decide on its approach to funding regulations and risk-sharing among savers, schemes, employers and the government.
It will also need to ensure that cross-border provisions do not create barriers to trading and business, including the fact that Scotland accounts for 24% of the workforce in the UK life and pensions industry.
The DWP said the independent government would need to ensure it has the appropriate regulatory and protection regime in place to allow defined contribution members to invest.
It said that, without such measures and a sound structure to fund state pensions, members could be fearful of means testing in future.
In response to the paper, Scotland’s deputy first minister Nicola Sturgeon told the BBC the report was another example of scaremongering from the UK government.
“It is plucking figures out of thin air to try and tell people in Scotland ‘you can’t do it’,” she said.