Taxpayers in an independent Scotland could have to bail out major pension schemes if they went under, according to research which also warns that pensioners could get lower payouts.
The SNP government has suggested that, after a “yes” vote, a new Scottish pension protection fund could be established to replace the existing Pensions Protection Fund north of the Border. The fund acts as an insurer, taking in annual levies from schemes and paying out to holders in the event of a collapse.
However, a new study warns that a Scottish-specific fund would be unbalanced, with the major financial companies dominating. According to JLT Employee Benefits, the company that carried out the work, RBS alone would command 25 per cent of the pensions landscape. It says that no single scheme dominates across the UK at the moment — no company makes up more than 5 per cent of the overall liabilities.
“This means that the risk is spread and there is less chance of a single insolvency leading to the collapse of the PPF,” JLT Employee Benefits said. “A separate SPPF would not enjoy this security. The SPPF would have significant overexposure to the financial sector, and in particular the RBS’s pension schemes.
“Assuming that RBS remained in Scotland, its pension schemes would represent £31 billion, approximately 25 per cent of all Scottish pension scheme liabilities. This concentration of risk in relation to a single institution would significantly increase risk to the SPPF and increase the amount of capital it would need to hold.”
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The company said that, on March 31 this year, the PPF was directly responsible for the pension benefits of more than 200,000 individuals protecting former employees of MG Rover, UK Coal and more than 700 other company pension schemes.
The SNP government’s white paper on independence states that the PPF could continue after independence, with Scotland playing its “full part”. But it adds: “It will also be possible for the government to establish a Scottish equivalent to the Pension Protection Fund. Individuals will have the same level of protection as they do now.”
However, Malcolm Paul, the chairman of JLT Employee Benefits in Scotland, said that a Scottish fund would look very different from that now operating across the UK.
He said: “The PPF, and presumably the SPPF, is funded by levies charged to eligible pension schemes across all industries, and so an increase in the capital requirements for the SPPF — in order to provide the appropriate degree of protection — would result in increased costs for Scottish companies via higher SPPF levies.
“In the event of, say, an RBS insolvency it is unlikely that the SPPF could deal with the impact on its own, and so either members’ benefits would have to be cut further for all members covered by the SPPF or the Scottish taxpayer would have to step in to help fund the benefits. We have seen over the past few years the impact on the Scottish economy of a downturn in the financial services sector. We would welcome clarity on how this concentration of risk in a Scottish PPF would be managed”.
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Last night, however, a source close to John Swinney, the Scottish finance secretary, said: “We have outlined our proposals for a pension protection fund, and people can be assured of the same level of protection in an independent Scotland as they currently have.”