What will an independent Scotland mean for pensions

In recent weeks the news of Scotland's independence referendum has dominated news and social media. One of the main concerns people seem to have is how pensions will be affected - after all, unfunded public sector pensions may have a promise of fulfilment from the UK government, but they are paid through current taxation. An agreement by Westminster to continue paying Scottish pensions would mean that UK taxpayers would be funding pensions of people in another country. Even private pensions could be affected; if Scotland uses a different currency it could affect guaranteed incomes, which annuities promise, because of exchange rates.

The issue is complicated even more when we consider that regulatory regimes may split, and an independent Scotland will require a new regulator and licensing. Key insurance companies such as Scottish Life and Scottish Widows  have already stated they will move from Scotland to England if independence is achieved, while SNP leader Alex Salmond has threatened to default on Scotland's £1.2 trillion debt. That would mean Scotland has a clean slate, but a bad credit rating would leave it in a very precarious position as it would require loans from other countries to pay for such things as the State Pension - and even if it did secure loans, its interest rates are likely to be extremely high.

According to the 2011 Census, 36.5% of Scotland's population is over the age of 50 , and 21% of Scottish employees are in the public sector . That's a lot of people waiting for definite answers on how their pensions will be funded, and an indication of how important the issue is. Although Steve Webb has confirmed that Scotland will receive its state pension, there's also been an acknowledgement that negotiations will be needed to work out the finer details. One such detail would be the currency - the insurance companies make a promise of a guaranteed income in a specific currency, so the real value of that income could change as the exchange rate fluctuates. This changes the "guaranteed" nature of annuities. There's also the question of what happens if a new Scottish government changes the rules on accessing pensions and these clash with the English regulations the providers must abide by.

Right now, as with many things relating to the reality of an independent Scotland, the questions around pensions remain unanswered - and time is running out before the referendum takes place.

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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new

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