This month, an old debate over who would pay the pensions in an independent Scotland resurfaced. It had been part of the debate in the run-up to the referendum eight years ago, when, in what seemed a strange outbreak of consensus, the SNP appeared to agree with unionist parties that any new Scottish government would take over responsibility for pensions immediately. This was not supported by anyone who looled into this.
“Responsibility for existing pensions will transfer to the Scottish Government. It is for a Scottish Government to be responsible for the payment of pensions but the historic liabilities and assets around pensions, as around other things, will be a matter of negotiation at the point of independence.”—Nicola Sturgeon, 2014
The first sentence seems to imply support for the unionist position that all pensions from DWP cease upon independence. But a proper reading of the latter part of the statement implies that residual obligations remain that can only be ended through negotiation. Like most things in life; it’s complicated.
Given that Westminster flatly refuses to grant permission, the likelihood of a new referendum is small, which leaves the pension question academic. But it did resurface this month, when Westminster leader Ian Blackford raised the matter, claiming the residual UK government would indeed have to pay existing obligations. He promptly received pelters from all quarters.
The idea that any residual UK (rUK or UK minus Scotland) could wash its hands of pension obligations to those who choose to become Scottish citizens seems both harsh and unfair. It is also technically illegal, and can be challenged, unless Westminster alters the legislation.
The UK Department for Work and Pensions (DWP) currently administers state pensions. Unlike private pensions, there is no central fund from which pensions are disbursed. Given the way tycoons like Robert Maxwell and Philip Green have raided their funds, perhaps it’s as well. The point is that pensions are paid out of tax revenues coming into HM Treasury.
The argument from unionists seems to be that pensions stop when Scots stop paying National Insurance Contributions (NICs). Westminster can indeed alter laws governing pensions as it likes. As an example he state pension age has been raised without those affected having any recourse. Some women have lost more than five years of pension as a result.
Barring a deliberate law to exclude Scots, unionists are missing the point. UK state pension is what is called a “contributory benefit”. Unlike programmes such as Universal Credit (UC), which are based on present circumstances, the exact state pension received is calculated entirely on NICs made during your working life. While a Scottish Exchequer should immediately take over UC and similar benefits on the day of independence, state pension entitlement at that point should remain.
The situation of UK state pension being outside the UK is well established. The UK has social security agreements with many countries setting out how payments are calculated when people have made contributions in more than one country. As an example, the UK Government already pays pensions to those who retire abroad, providing they have made sufficient National Insurance contributions. This applies whether they are UK citizens or not—many EU nationals have made considerable NIC payments before returning home. They have access to pension entitlement, irrespective of nationality. This is not unique; US resident aliens who relinquish that status and return home are paid their SSA pension entitlement, although they are neither citizen nor resident.
It would be inconsistent to pay a pension to a French native living in France who had paid sufficient NICs while in the UK, yet refuse it to someone who had made similar contributions living in a newly independent Scotland.