Scotland's first minister Nicola Sturgeon will seek a second referendum on Scottish independence, to be held by spring of 2019, triggering concerns about the challenges a Yes vote would pose to UK pensions.
The Scottish National Party leader said on Monday the refusal of Conservative ministers to consider Scotland’s interests in Brexit negotiations warranted the second plebiscite.
Experts said uncertainty around the terms on which the UK will leave the EU may also hinder understanding of the impact of Scottish independence, although concerns remain around the costs of dividing the pensions system.
Having a sort of shadow Pensions Regulator and Pension Protection Fund sounds very onerous and clunky really for a small country
Penny Cogher, Irwin Mitchell
Market reactions to the news were subdued, and the pound rose against the dollar on Monday.
No new blueprint for an independent Scotland has been set out yet, and the Scottish parliament must approve the call before negotiations with Westminster can begin.
“What we will be doing is reassuring people that in an independent Scotland pensions will be safer,” said SNP MP and pensions spokesperson Ian Blackford.
But the SNP have an uncompromising opponent in Prime Minister Theresa May, who rejected the calls, saying "now is not the time".
The Fleeing Scotsmen
Despite the lack of certainty over the timetable for the referendum and any resulting pensions environment in Scotland, experts consistently cited the costs of a separation.
James Walsh, the Pensions and Lifetime Savings Association’s EU and international policy lead, said independence would mean many schemes having memberships on both sides of the border.
“It is likely that, over time, the UK and Scottish tax and regulatory regimes would diverge – especially if Scotland were to be a member of the EU (while the UK is not). This would be likely to have cost and administrative implications for pension schemes,” he said.
Brexit key to deal
What is clear is the importance of Brexit negotiations in any debate on the merits of Scotland as an independent pensions jurisdiction.
How greater Scottish devolution could affect your scheme
Had the Scots voted for independence in September 2014’s referendum and Scotland had become an EU member state, the cross-border legislation would have kicked in and defined benefit schemes with members on both sides of the border would have had to eliminate deficits within two years.
“We need to understand the impact that Brexit may have,” said Greig McGuinness, trustee representative at Dalriada Trustees, noting the possibility that a hard Brexit and Scotland’s rejoining the EU could reverse the position of Scottish investment companies.
“Last time round they definitely wanted to stay in the UK, but I think that was part of staying in Europe,” he said.
Crossing the border
Brexit may also allay some concerns over the creation of cross-border schemes, a major feature of the last independence debate over pensions.
Under EU legislation, schemes that have members in two member states are considered cross border schemes, and must be fully funded at all times.
“We can still have a scheme without it being caught by cross-border requirements as long as there’s only one EU member state in it,” said Anna Rogers, senior partner at Arc pensions law.
Yes or No: schemes brace for Scottish independence vote
Pension scheme managers and industry experts focused on tax and cross-border funding requirements as challenges that could have arisen out of 2014’s Scottish independence vote.
She added that the EU seemed to be softening to the idea of schemes running deficits as is seen in the UK pensions model.
An expensive divorce
Nonetheless, even the decision to set up a separate pensions environment will involve significant costs, argued Penny Cogher, pensions partner at Irwin Mitchell.
“Having a sort of shadow Pensions Regulator and Pension Protection Fund sounds very onerous and clunky really for a small country,” she said.
She expected that Scotland’s financial services industry might receive some protection in the event of independence, perhaps in a similar way to current talk of safeguarding the City of London from Brexit.
