Scottish Independence ‘Would Create Pension Scheme Challenges’

Support for an independent Scotland that is no longer part of the United Kingdom in next month’s referendum may call into question the continued viability of defined benefit (DB) pension provision and present challenges to businesses and pension schemes, according to Buck Consultants at Xerox.

However the advisory firm, which is part of the human resource services (HRS) division within Xerox, adds that with careful planning many of these challenges have reasonable solutions. While there will be additional costs, well advised pension schemes will be able to deal with the consequences.

“Given the importance of economic issues to a successful divorce, the impact on workplace pensions should feature strongly in considering Scottish independence,” said Steven White, managing director, Europe, Buck Consultants at Xerox.

“With 5,000 businesses operating in Scotland and owned outside, covering 35% of Scottish private sector employees, the potential implications are significant. The new requirements may mean that future workplace provisions will have to change considerably so the challenges will need to be addressed.”

The number of businesses, pension schemes and members affected cannot yet be accurately quantified because the required figures are not in the public domain – although without doubt the numbers are large.

Buck’s ‘Insightful Thinking’ white paper on Scottish Independence and workplace pensions identifies two key issues that may call into question the continued viability of remaining defined benefit provision:

  1. European Union (EU) membership and the terms that will apply to both an independent Scotland and ‘remainder UK’. UK businesses that operate both sides of the border account for 20% of private sector employment in Scotland.
  2. The currency that an independent Scotland would use. If it is not sterling, there will be complications in running workplace pension arrangements both sides of the border.

According to Buck, businesses with operations in both independent Scotland and ‘remainder UK’ (rUK) that run a single workplace pension scheme covering employees on both sides of the border may be subject to further requirements that will effectively lead to splitting the scheme into two parts. This will change future workplace provisions significantly.

Following a split, schemes that straddle the border are unlikely to be replaced by new schemes on a DB basis. The remaining DB scheme in rUK will also be at risk, sparked by the catalyst of splitting and the probable desire to harmonise benefits across the whole workforce of the business.

“Amongst all the arguments for and against an independent Scotland, one thing we can be confident of is additional costs, both to defined benefit (DB) and defined contribution (DC) schemes, which may suffer reduced economies of scale,” said White.

“The cost of making the changes necessary to pension arrangements is likely to fall across employers and employees on both sides of the border.”

A full copy of the ‘Insightful Thinking’ white paper may be accessed here.


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