Public Law

A guest post from Alison Shackleton of Brodies’ Pensions team:

In the last few weeks the independence referendum debate has re-focused on the future of UK private pension funds.

Since ICAS released its well publicised paper in April, both sides of the debate have asserted their views as to what and how pension funds could be threatened, altered or secured by constitutional change.

At present, many occupational defined benefit and hybrid UK private pension schemes are in deficit. Currently these are not cross-border schemes, as contributing employers and schemes are all located within the UK. However, if Scotland were to become independent some cross-border employers would then be operating in a separate country from their schemes. In other words, some employers and their schemes would become divided between an independent Scotland and the rest of the UK (rUK), turning those schemes into cross-border schemes.

Under EU Directive 2003/41/EC (implemented in the UK through the Pensions Act 2004) any cross-border private pension fund must be fully funded, but having to fully fund schemes that are currently in deficit would be a daunting task for many businesses. Recently it was reported that the Universities Superannuation Scheme (the second largest pension fund in the UK) could be seriously affected by independence. Other reports have suggested that UK charities could also be adversely affected.

If Scotland were to become both an independent state and an EU member (however the latter status came about), then the EU Directive as it stands would undoubtedly impact on cross-border private pension funds. That would apply just as much to schemes in rUK, with contributing employers in Scotland, as it would to Scottish-based schemes to which employers elsewhere in the UK contribute. As ICAS noted, there would be “significant pensions issues for the UK Government to address during any period of transition towards Scottish independence.”

In the event of a ‘yes’ vote it would be in the interests of both governments to collaborate and mitigate the consequences of this EU Directive. Possible solutions suggested by ICAS include an exemption, a grace period or the splitting up of relevant schemes. The First Minister was criticised recently for stating that an independent Scotland could seek a “derogation” from the Directive’s requirements, having previously said that independence would make “no difference” to cross-border pensions. The Scottish Government has not yet outlined specific plans on this issue, but their ‘White Paper’ on independence is expected in the autumn and is likely to include proposals on pensions.

Government, Regulation and Competition Law

Brodies’ market-leading government, regulation & competition team advises local authorities, public bodies and commercial clients in judicial reviews, statutory appeals and in bringing and defending regulatory enforcement action.
Government, Regulation and Competition Law