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In Context: Pensions in an Independent Scotland

In Context: Pensions in an Independent Scotland

Why are we talking about pensions?

After going into the 2014 referendum saying one thing, the SNP appears to have recently changed tack when it comes to what will happen to pensions in the event of a vote for independence. The party’s Westminster leader, Ian Blackford, has said the UK Government will retain an “obligation” to pay the pensions of those who contributed National Insurance prior to any Yes vote. However, this has been seized on by critics who say it represents a complete reversal of the party’s position as set out in its 2013 independence white paper, Scotland’s Future.

What did the party say at the 2014 referendum?

When it came to pensions, the white paper was clear. It said: “For those people living in Scotland in receipt of the UK State Pension at the time of independence, the responsibility for the payment of that pension will transfer to the Scottish Government.” It also committed to paying all current pensions on time and in full, as well as establishing an independent commission to advise on the state pension age. For those of working age, it said UK pension entitlement accrued prior to independence would form part of their Scottish state pension. “Any pension entitlement accrued in Scotland after independence would also form part of that Scottish state pension,” the white paper said.

What are they saying now?

Asked about pensions in an independent Scotland during an interview with ITV Border, Blackford said: “The Chief Secretary to the Treasury made it clear (in 2014) that the UK retained an obligation to pay pensions to those that had paid National Insurance. That’s a matter of precedence.” Pressed on this being a reversal of the SNP’s previous position, Blackford added: “The point is, that it’s an obligation on the UK Government to meet the commitment to pensioners who have paid National Insurance contributions – they have paid for the right to receive that pension.”

The matter was raised at First Minister’s Questions by Tory MSP Murdo Fraser who asked whether it was the SNP position that pensions in an independent Scotland would be paid for by taxpayers in England. Nicola Sturgeon said a vote for independence would lead to negotiations over UK liabilities and assets, including those related to pensions. The First Minister said the UK pensions minister in 2014, Steve Webb, had said those with “accumulated rights would continue to receive the current levels of state pension in an independent Scotland”. Sturgeon said pensioners would notice “no difference”. However, she later appeared to backtrack, saying her party’s position had not changed since 2014. Earlier this week, Blackford told Sky News that an independent Scotland would “take responsibility” for pensions. 

What is the UK Government’s position?

While the SNP have been quoting a former pensions minister, the current incumbent of the post has accused the party of “misleading” the Scottish public. Quoted in the Mail on Sunday, Guy Opperman said: “If Scotland choose to become a foreign country, then working English, Welsh and Northern Irish taxpayers should not pay for a foreign country’s pension liabilities. That has been the settled position of the UK Government since before the 2014 referendum.”

What’s the truth?

In short, it’s complicated. One of the points made repeatedly by the SNP is that the UK continues to pay the pensions of those who go and live overseas following their retirement. While this is indeed the case, it’s unlikely the Treasury will see Scottish independence in the same way. Pensions are not paid from a “pot” but rather from everyday taxation. According to economists at the Fraser of Allander Institute, an independent research institute, it’s likely that in the event of a Yes vote, the UK would argue that the loss of a significant share of the UK tax base constitutes an “unprecedented change in circumstances that renders comparisons with the treatment of individuals under current state pension policy irrelevant”.

In a blog on the issue, economists at the FAI noted the UK already has a number of social security agreements in place with other countries. They concluded: “In summary, the question of which government would be liable for the state pension in an independent Scotland is both more complex and more uncertain than either ‘side’ might claim. And it likely cannot be resolved in isolation from other questions.” In truth, the future of pensions is likely to be just one strand of complex negotiations between Scotland and the UK following an independence vote. With the SNP committed to holding a second referendum in the first half of the Holyrood parliament, expect to hear a lot more about pensions in the coming months and years.

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