An independent Scotland would face additional financial pressures paying for an aging population than if it remained in the UK, the Department for Work and Pensions (DWP) has warned.
DWP's report, Scotland analysis: Work and pensions, stated that spending on pensioners in Scotland is proportionally higher than the UK average and added that the proportion of pensioners in Scotland is expected to increase faster than the rest of the UK over the next 20 years.
The report said: "Pensioners make up 19.8% of the population in Scotland compared to 19.2% in the rest of the UK. By 2032, based on Office for National Statistics population projections, this gap will have doubled, with Scotland's pensioners making up 22% of its population compared with 20.8% in the rest of the UK."
According to the report, over the next 20 years expenditure on pensioners would rise to around £410 more per working-age person per year in Scotland compared to the UK as a whole.
As a whole, over the next 20 years extra expenditure on pensioners would rise to around £1.4bn higher per year.
However, DWP argued that spending on pensions in Scotland would be more affordable as part of the UK, than in an independent Scotland.
In the report, DWP said: "The current devolution settlement gives Scotland the best of both worlds, allowing risks to be shared across the UK but services to be tailored to local circumstances."
It said that an independent Scottish state would face "a more acute challenge" than the UK as a whole because of demographic changes and its ability to absorb the impacts from a narrower tax base.
The report questioned Scotland's ability to "reserve judgement" on increasing the state pension age to 67 and its proposal to start the new single tier pension at £160 a week, as these actions would attract "significant" additional costs to pensions.
Just to maintain the existing system, the report stated that these additional costs would have to be funded by raising taxes or cutting other public services.
Further cost implications would result from the need to protect, and regulate pensions, support auto-enrolment schemes and disentangle UK state pensions from those of an independent Scottish state, the report stated.
The report said: "An independent Scottish state would have to set up new structures, administrative arrangements, and regulatory bodies – with the associated costs falling on current and future savers, taxpayers, employers and pension schemes."
The DWP's report said that alternatives to the National Insurance, The Pensions Regulator (TPR) and the Pension Protection Fund (PPF) would have to be found, delivering similar systems to a much smaller population without the economies of scale that are possible for UK-wide systems.
Additionally, an independent Scottish state would also need to consider cross-border funding requirements and operations, especially since the Scottish Government has stated that it wants to belong to the European Union (EU).
The report said that an independent Scotland faces two challenges concerning the delivery of pensions.
The first is creating the basic infrastructure to administer pensions effectively and safely.
The report added: "The second challenge is securing sustainability and affordability for the future and demonstrating that it can be secured now. The government of an independent Scottish state would need to provide early assurance that it can deliver pensions in line with savers' expectations."
First published 25.04.2014
monique_simpson@wilmington.co.uk
