Xafinity’s actuaries identify Scottish independence will create challenges and increased costs for employers, pension providers and their advisers.
Independence would allow a review of the appropriateness of existing UK pension institutions, how pensions are delivered, tax reliefs, inter-generational resource transfers, public sector debt structures and the relationship between private sector and public sector obligations.
However, Xafinity points out that independence will also create considerable costs which may make the on-going provision of pensions problematic for some employers which could lead to pressure for state support.
Specifically, costs will increase in a number of areas including: the establishment of a new institutional framework to supervise and deliver pensions, even if the existing UK framework agrees to provide assistance. Should Sterling be retained as the national currency, a separate fiscal policy will require different tax and national insurance regimes which will increase costs, at least initially for payroll systems and treasury functions. Similarly a revised tax regime will create costs even if there are overall benefits for both individuals and corporations.
Issues are also created by the need to replicate or compliment the Pensions Regulator and possibly the Pension Protection Fund. There could also be a requirement for separate professional advisers and almost certainly the requirement for different exam regimes.
The potential issues extend to other areas of pensions provision such as investment management which could necessitate separate, perhaps, clone funds being created. There is also a serious issue of how much business a separate stock exchange in Edinburgh would attract, the volume of Scottish debt issued, underlying inflation indexation and whether Scottish based institutions could afford to ‘buy locally’ or would they need to invest most of their money overseas.
Further costs and complications will be created by the IORP Directive which would require all schemes located in Scotland accepting contributions from an employer located in the rest of the UK (or vice versa) to apply for authorisation as a cross border scheme with potential extra funding obligations.
Donald Campbell, principal consultant, Xafinity “A yes to Scottish independence would make huge waves across the pension industry, both in Scotland and the remainder of the UK. Corporate advisers would be the obvious winners in the short term but additional costs would arise for many employers, who would almost certainly be pressing for the new government to provide support in one form or another.”
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