Scottish Independence Expert Guide: What Will Happen to Your Pension on a Union Break?

Both the Better Together campaign and Yes Scotland have made a number of different claims over what impact Scottish independence would have over pensions.

IBTimes UK spoke to Catherine McKenna, partner and global head of pensions at Squire Patton Boggs:

Q: If Scotland became independent, what would the immediate impact be for Scottish people's pensions?

A: There are many questions still left unanswered. Pensions may not have been at the forefront of either campaign but a 'Yes' vote will have a significant impact on pension schemes.

Individuals and employers need to be mindful of such implications, but the devil will be in the detail.

The biggest issue coming out of the referendum for sponsoring employers of private sector plans relates to cross-border requirements.

Although there is no immediate effect, if and when an independent Scotland gains entry to the EU, it is thought that these onerous requirements will apply to approximately 3,000 pension schemes.

The implications of this are significant: under current European legislation cross-border pension plans must be fully funded at all times and are subject to additional regulatory oversight.

For affected pension plans, the costs of compliance will be steep, whether the scheme is to end its cross-border nature, or comply with new obligations. Employers will therefore need to re-think benefit design and scheme structure."

Q: What would happen to state pensions and can people expect it to be the same as if they were still in the UK?

A: The affordability of a Scottish State Pension became one of the key battlegrounds in the run up to the referendum.

The Scottish Government has committed to reviewing the increase in State Pension Age and has promised improvements to the State Pension.

The Scottish Government has stated its commitment to a move to a single-tier State Pension, but it is unclear how the abolition of contracting-out will be implemented in an independent Scotland.

Concern has also been expressed as to whether Scotland could set up a new benefits system within the proposed timeframe. There have also been numerous questions around how public sector pensions liabilities will be divided between the UK and Scotland.

Q: And how about if Scotland stayed in the union - is it likely devo max would happen, and if so, how will this affect pensions?

A: If Scotland votes to stay in the union and greater powers were devolved, as all three main Westminster parties are now pledging, it is unlikely that the regulatory proposals that came out during the campaign would still go forward.

For example, a separate Scottish Pensions Regulator or those concerning the planned creation of 'Sest', a Scottish equivalent of Nest (the National Employment Savings Trust).

On the other hand, if Holyrood used its power to set different tax thresholds, or fundamentally changed its tax approach, there could be significant implications for auto-enrolment and pensions tax relief.

Although no plans have yet been proposed to alter pensions tax relief arrangements, any alterations would result in increased costs and administrative requirements for employers managing separate payroll and compliance arrangements north and south of the border.

Q: From a legal standpoint, what options do clients have to protect themselves from this uncertainty?

A: The best short-term solution is to keep watch on pension developments and to take advice, but don't take pre-emptive decisions in an information void.

As and when things become clearer, develop a plan to identify key decisions needed and the necessary timing. If devolution happens, the Scottish Government proposes that Scotland's Independence Day will be on 24 March 2016 but not everything is likely to be settled by then, so some of the pension implications may be staggered as Scotland's "constitutional platform" is developed, or may only come into being as and when Scotland joins the EU.