THE SNP will have to water down the pensions promises made in its last independence manifesto if it gets to hold a second referendum, with the cost of offering an inflated state pension likely to be an additional £60 billion over the next 50 years.
In the lead up to the 2014 vote the SNP said that pensioners in an independent Scotland would receive state payments of £160 a week from April 2016, almost three per cent higher than the £155.65 paid by the Westminster Government at that time.
Taking into account promises made by the administrations in both London and Edinburgh to increase the state pension by at least 2.5 per cent a year, the £160 would have to increase to £176.60 a week from 2020 if voters are to be presented with a comparable deal as part of a second referendum campaign.
READ MORE: 'False premise' state pension should be scrapped, says think tank Reform Scotland
By the same measure the UK payment by 2020 would be £171.81.
The total cost of providing that would be around £8.9 billion in the first year and would rise significantly over time.
Murray Wright, a senior consultant at actuarial business JLT Employee Benefits, noted that at the time of the last referendum the Department for Work and Pensions calculated that for every pound offered over the Westminster state pension the additional cost to Scotland would be £12.7bn over 50 years.
If the SNP was to match the offer made in 2014 the Scottish state pension would be £4.79 a week higher than the one in the rest of the UK, making the total extra cost over 50 years £60.8bn.
Malcolm Paul, chairman of JLT Employee Benefits Scotland, said in order to honour such a commitment the SNP would have to make cuts elsewhere.
“A gap of £4 costs about £1bn per annum in the long term,” he said. “It’s sneaky because it builds up and with an ageing population it will increase quite rapidly. Even a small monetary addition adds up in the long term to a significant pot of money.
“The question is how will that be funded? What will they not spend it on to be able to spend that extra £1bn?”
Political economist John McLaren, an honorary professor at Glasgow University’s Adam Smith Business School, said that to make increased pension payments fiscally neutral the SNP would have to consider raising the state pension age more quickly, something it is opposed to.
“Scotland’s population is ageing faster than the UK’s, which would push the [Scottish] Government towards raising the pension age more quickly in Scotland than in the UK to make up for the greater percentage of non-working population,” he said.
READ MORE: Play it loud: How love of rock music threw 88-year-old a new lifeline
This would be problematic for the SNP, which said in its 2014 manifesto that it agreed with increasing the state pension age to 66, but that “the Westminster Government’s plan for a rapid move to 67 is a concern”. This is because life expectancy in some of the most deprived parts of Glasgow is as low as 67.5, while it is as high as 83.3 in Kensington and Chelsea, one of the wealthiest parts of England. As state pensions operate on a pay-as-you-go basis, meaning they are paid out of the current year’s tax take, stalling the rise would put an increased burden on the working population.
Steven Baxter, head of longevity innovation and research at actuarial business Hymans Robertson, said that at the moment for every person receiving the state pension in Scotland there are three people of working age paying the taxes to fund that pension.
As the proportion of the population over 65 is growing more quickly than the proportion under 65, that ratio will have fallen to 2.5 to one by 2050, assuming the state pension age has risen to 68 by that point. If, however, Scotland was to maintain the state pension age at 66 it would fall further, with just 2.2 taxpayers supporting every pensioner. Mr Paul said that rather than trying to address Scotland’s longevity issue by keeping the retirement age lower, which would have a detrimental effect on those in work, the Government should make the pensions savings the age rise is designed to tackle and address life-expectancy issues at the other end.
READ MORE: 'False premise' state pension should be scrapped, says think tank Reform Scotland
“This whole thing about not increasing the state pension age because we don’t live as long as people in the rest of the UK is not treating the fundamental problem – it’s treating the symptoms rather than treating the ailments,” he said. Instead, they could give financial assistance via tax relief to employers to run wellness programmes in their businesses.
“One of the issues if you look at what’s gone on with longevity is childhood obesity – [those children] will get older and will have problems caused by obesity. [The Government] should be trying to address that at source rather than trying to treat the symptoms when people have it later in life.”
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel