Granting the Scottish Parliament greater autonomy could lead to problems in the area of pension taxation, experts have warned after the country rejected independence.
Yesterday’s referendum – which saw 55% of the electorate vote in favour of Scotland remaining part of the UK – was preceded by pledges from the UK’s three main political parties that further powers would be bestowed on the devolved administration in Edinburgh.
A commission, to be headed by Green Investment Bank chairman Lord Smith, will now negotiate the extent of new powers, which are expected to include greater autonomy on tax matters.
National Association of Pension Funds chief executive Joanne Segars noted Smith’s appointment, which will see his commission also examine greater autonomy on welfare spending, and said the organisation would be staying alert of any proposals that would have a “material” impact on pensions.
Dominic Harris, pensions partner at CMS Cameron McKenna, said he did not expect any “significant” changes to either private pensions or the state pension.
Mike Kennedy, partner at Barnett Waddingham, nevertheless warned that pension funds should not “rest easy”.
However, Harris added that it was inevitable there would be an impact on pensions taxation.
“If Scotland sets its own rates of income tax, they are unlikely to be identical to those in the rest of the UK,” he said.
Kevin Legrand, head of pensions policy at Buck Consultants, noted that occupational pensions were “closely tied” to the tax system, and said any changes would lead to a “growing divergence between the regimes on each side of the border”.
Harris agreed, arguing that the differing income tax rates would cause “administrative issues”, while Kennedy predicted increasing costs as a result.
Arthur Zegleman, senior consultant at Towers Watson, noted that the Holyrood parliament had yet to avail itself of more limited tax-setting powers it has possessed since it was established in 1999, but warned that pension funds would need to be ready regardless.
He pointed out that the post-tax income paid by occupational schemes, and the pensions tax relief paid by the UK’s tax authorities (HMRC), could vary depending on whether the member’s main residence were in Scotland or elsewhere.
“Until 2018, HMRC plans to make uniform payments regardless of where the individual lives and balance things out by adjusting how much tax it takes out of their pay, but that is only a temporary sticking plaster,” he said.
Zegelman stressed that there had so far been no suggestion Holyrood would be granted any powers over pensions tax relief, with the UK government so far having only committed to income tax.
LCP partner Bob Scott added that, with the referendum concluded, pension trustees could now turn their attention to the changes announced by UK chancellor George Osborne in his Budget.