Wife's NHS Pension

[AJC5001]

Just a thought for others who are members of ‘unfunded’ public schemes in Scotland and are considering options for additional pension. Most of these schemes have an implicit value in Sterling, you pay your pounds in and expect to get a defined amount back in pounds when you retire.

But

With the very real spectre of Scottish independence rearing its head again, one might wish to consider the possible impact of an independent Scotland having to stop using the pound and how that might impact on what you actually receive as a pension, and also how the trajectory of any new Scottish currency might affect what that pension Is worth in future years.

For what it’s worth I don’t really know what the likely outcome is, but given That I expect to retire on a full civil service pension (thanks to buying a large number of ‘added years’ ) I have to say I’m not hopeful that a new Scottish currency would be good news for me or the 100’s of thousands of others holding these pensions, but a Sipp, dp or db pension based on real assets held outside of Scotland might fare much better if the ‘groat’ tanks as I feel it probably would.

Purely speculative problem, but perhaps not for much longer.

I’s all a massive unknown, but it is increasingly important in my thinking as the chance of independence rises and I will be seeking answers should another referendum be thrust upon us.

BH

Is this also likely to affect the State Pension?

At what point would an independent Scotland take over the payment of State Pension?

Would those receiving their pension before independence still be paid from the remainder UK?

What would happen to those with pensions being deferred - who would pay them?

We live in interesting times, do we not?

Adrian

[bionichamster]

Is this also likely to affect the State Pension?

At what point would an independent Scotland take over the payment of State Pension?

Would those receiving their pension before independence still be paid from the remainder UK?

What would happen to those with pensions being deferred - who would pay them?

We live in interesting times, do we not?

Adrian

The most likely outcome is that SG would take over responsibility for paying the pensions of all Scottish residents at some point, probably quite soon after independence.

If a new Scottish currency was created and was at some point not pegged to sterling that is when the potential trouble starts for unfunded db schemes. The state pension can be constantly varied by the government though and probably would be, thus if a falling Scottish currency had a real impact on purchasing power one might expect the SG to increase it substantially to compensate, but for various reasons I’m not so sure that would happen with the db pension, although under current circumstances there is a link to cpi so maybe that would maintain the value if it held true.

My point was really that when weighing up an avc that goes into an investment fund against an unfunded db promise as alternatives for ‘extra’ pension then the funded invested scheme ‘might’ offer better value in the event of independence and a free floating Scottish currrency, given that I and many others think that such a currency would probably fall and stay relatively weak for many years while the impact of independence is ironed out. This would be simply because the majority of assets in which the fund is invested would be in other stronger currencies and thus worth more as a Scottish currency fell.

It is pure speculation, but if I were making a decision on dc vs db (unfunded) top up just now I might be inclined to take the dc more seriously than I would have in the past. It’s also worth noting that the above scenario has considerable ramifications for anyone living and working in Scotland but who might wish to move other parts of the UK when they retire.

It might be true that there is so much unknown that it’s not worth trying to second guess, although I have to say that concerns about the value of my db pension will certainly be of consideration should there be another referendum.

BH

[ursaminortaur]

Is this also likely to affect the State Pension?

At what point would an independent Scotland take over the payment of State Pension?

Would those receiving their pension before independence still be paid from the remainder UK?

What would happen to those with pensions being deferred - who would pay them?

We live in interesting times, do we not?

Adrian

The most likely outcome is that SG would take over responsibility for paying the pensions of all Scottish residents at some point, probably quite soon after independence.

If a new Scottish currency was created and was at some point not pegged to sterling that is when the potential trouble starts for unfunded db schemes. The state pension can be constantly varied by the government though and probably would be, thus if a falling Scottish currency had a real impact on purchasing power one might expect the SG to increase it substantially to compensate, but for various reasons I’m not so sure that would happen with the db pension, although under current circumstances there is a link to cpi so maybe that would maintain the value if it held true.

My point was really that when weighing up an avc that goes into an investment fund against an unfunded db promise as alternatives for ‘extra’ pension then the funded invested scheme ‘might’ offer better value in the event of independence and a free floating Scottish currrency, given that I and many others think that such a currency would probably fall and stay relatively weak for many years while the impact of independence is ironed out. This would be simply because the majority of assets in which the fund is invested would be in other stronger currencies and thus worth more as a Scottish currency fell.

It is pure speculation, but if I were making a decision on dc vs db (unfunded) top up just now I might be inclined to take the dc more seriously than I would have in the past. It’s also worth noting that the above scenario has considerable ramifications for anyone living and working in Scotland but who might wish to move other parts of the UK when they retire.

It might be true that there is so much unknown that it’s not worth trying to second guess, although I have to say that concerns about the value of my db pension will certainly be of consideration should there be another referendum.

BH

If the currency fell permanently then it would be expected that this would eventually feed through to inflation. Since 1997 there has been a statutory requirement for all DB schemes to provide a level of inflation protection in the form of yearly increases. Prior to 1997 there was no statutory requirement but many schemes provided such increases and many of those which didn't do so before 1997 applied such increases from that time forward to pensions built up before 1997.
The exact level of inflation protection provided will depend on the scheme rules with some providing full inflation protection (usually true for public sector pensions) or the statutory minimum (ie up to 5% increases, or 2.5% after 2005). Hence how well this would protect DB pensions would depend upon the scheme rules and level of inflation which occurred.

https://commonslibrary.parliament.uk/research-briefings/sn05656/

Defined Benefit (DB) pension schemes provide pension benefits based on salary and length of service. There are statutory minimum requirements on them to:

Index pensions in payment in line with inflation, capped at 5% for benefits accruing from service between April 1997 and April 2005, and at 2.5% for benefits accruing from April 2005 – known as Limited Price Indexation (LPI) (Pensions Act 1995, s51);
Revalue the deferred pensions of early leavers in line with inflation capped at 5%, and at 2.5% for rights accrued on or after 6 April 2009 (Pension Schemes Act 1993).

Before April 1997 there was no general obligation on Defined Benefit schemes to increase pensions in payment (although there was a requirement on schemes that were contracted out of SERPS to provide indexation capped at 3% on rights accrued from 1988).

Importantly, these are statutory minimum requirements -there is nothing to prevent schemes from making more generous arrangements through their scheme rules. Despite the fact that indexation was not made mandatory for rights accrued before 1997, it appears that many schemes did apply some form of inflation protection to pensions in payment on a voluntary basis and many applied LPI retrospectively to service before 1997