When Scotland's professional accountancy body enter the referendum debate it is time for Scotland to sit up and listen. That is exactly what happened last week when the Institute of Chartered Accountants Scotland (ICAS) published their report on pensions and a separate Scotland. The devil is in the detail of pensions and the questions raised by ICAS about private sector and state pensions cannot, as the SNP fervently hoped, be wished away or met by blind assertion. Withdrawing Scotland from a UK pensions system in which Scots have built up accrued rights since the Second World War is by definition complex. Scots deserve answers on how their pensions will be protected if we leave the UK and the cost of doing so.
ICAS highlighted the fact that cross-border Defined Benefit (DB) company pension schemes must be fully funded. This is a huge issue since leaving the UK by definition creates a border between the Scotland and rUK. In the pensions context the creation of this border has hair raising consequences. By EU law all companies operating in more than one EU member state must meet strict funding requirements for their workers' pension scheme. If the SNP got their way every company operating cross border between Scotland and rUK would overnight have to fully fund its DB pension scheme. Given the total UK pension scheme shortfall currently stands at more than £230 billion (yes you read that right) the costs of doing business in a separate Scotland and rUK suddenly just got much more expensive. Companies would face a huge bill to absorb the extra Scottish pension costs created by separation.
The SNP's dumbfounded response to the ICAS report was telling. In 48 hours the SNP response went from "nothing will change" to the implausible claim that the EU would agree that Scotland could break the common rules on insolvency which all 27 EU states currently comply with.
Nor have the SNP thought about the complex UK regulatory architecture which protects the pensions of Scots. The Financial Services Compensation Scheme (FSCS), the Pension Protection Fund (PPF) and The Pensions Regulator (TPR) together provide a UK wide firewall for Scots against the loss of pension savings. How much would it cost to withdraw Scots from this UK wide pensions architecture and how much would it cost a separate Scotland to then mimic the rUK pensions architecture? We have no answers from the SNP predictably. Nor have the SNP addressed the cost of withdrawing Scots workers from the new UK auto-enrolment pension system and the new UK Govt backed National Employment Savings Trust (NEST) pension scheme that accompanies auto-enrolment. How much would this cost and would Scotland then set up its own version of auto-enrolment and NEST. How much would that cost?
What about the future of the PPF which pays pensions to UK workers who otherwise would lose their pension savings when their employer goes bust. The pensions of 16 000 Scots are paid and managed by the PPF - just ask the Ayrshire steel workers who found their pension pots emptied when Allied Steel went bust until the PPF stepped in. Or ask the Irish workers left high and dry when Waterford Crystal went bust. While the PPF guarantees pensions for Waterford's former UK employees Irish workers continue their legal fight to get a pension from the Irish state. This is one Irish example you won't hear the SNP quoting.
What emerges from a close reading of the ICAS report is the benefit to Scots pensions of pooling resources and sharing risks and rewards across the UK. This is particularly important for Scotland given the demographic triple whammy we face relative to the UK as a whole. The Demography & Ageing Report of Holyrood's Finance Committee makes sobering reading. Scotland will have more old people, fewer young people and greater illness and disability among the ageing going forward than the UK as a whole.
This is why pooling our resources at the UK level is so sensible. It ensures uniformity of provision for Scots even as the cost of dignity in old age for Scots pensioners whether through illness, disability or poverty associated with illness and disability. Remember the UK spends far more on the state pension and associated pensioner benefits than in any other area of social security. Take pension credit: last year alone £8bn was redistributed to our poorest pensioners and the total redistributed to poor pensioners is almost £75bn since Gordon Brown introduced pension credit in 2003. The UK system is not perfect nor is the system in any country, but it is built, it is sustainable and it has a broad spread population to support it.
Thus the secret John Swinney cabinet paper fretting about how to pay for the state pension in a separate Scotland. The arithmetic is clear. We face a £2bn black hole in state pension funding by 2035 because of our demographic triple whammy outlined above. In private the SNP admit this to each other but deny it to the public. Scotland if it left the UK would face a choice: reduce state pension or meet the shortfall via higher taxes or cuts in other social spending.
Scotland's Chartered Accountants have performed a public service by turning their gaze on these and the other questions that leaving the UK poses for Scots and their pensions. That SNP and Yes Scotland appear not to have thought about many of the issues in hand on pensions is troubling indeed.