19th June 2014
An Independent Scotland keeping the same state pension age and state pension policy as the rest of the UK, could find it more difficult than the UK as a whole to afford the state pension.
The Pensions Policy Institute (PPI) has made the assertion in its evidence to the Scottish Parliament Finance Committee.
The UK wide Pensions Act 2014 implements a new single-tier state pension from April 2016 that will replace the current Basic State Pension and the State Second Pension. The Act also contains a process for determining future increases to the State Pension Age.
The PPI evidence highlights significant differences in estimates of life expectancy within the UK. While for England, 2032 is the trigger year in which the retirement age would need to increase to 68 to meet the criteria set out in the 2014 Pensions Act, the first year in which this would happen in Scotland is 2045.
However, despite lower life expectancy levels overall for Scotland, the population is ageing more quickly in Scotland than the rest of the UK, and increasing faster relative to the number of working age people.
This could make paying for state pensions more difficult in future in an independent Scotland, with higher state pension expenditure being funded by a relatively smaller working age population.
The Scottish Government has also proposed a number of further state pension measures for Scotland, including a delay in increases to the State Pension Age compared to the rest of the UK, a potentially more generous single-tier pension than in the rest of the UK and retaining Savings Credit (which would be abolished for people reaching State Pension Age in the rest of the UK from April 2016 onwards). All of these would further increase state pension costs in Scotland.
Chris Curry, director of the PPI, says “The increased state pension spending implied by the plans of the Scottish Government is not necessarily unaffordable. However, the Scottish Government would need to either raise higher revenues (for example through taxation), reduce spending in other areas (for example where demographic pressures are less), or have higher Government debt levels.”