Scottish independence could mean distress for UK pensions

A ‘yes’ vote for Scottish independence could create a pension crisis in the UK as firms operating on both sides of the border may be forced to top up their pension schemes with cash. According to financial analysts at JP Morgan, this legal requirement could prove ‘unaffordable’.

If an independent Scottish state fails to become a member of the EU, laws would see some plans considered as ‘cross-border’.  In such a case, companies will be required to fully fund their pension schemes.

JP Morgan has identified 22 companies that could face a cash flow risk affecting their pension schemes. Companies including BAE, BT, Tesco, G4S, Sainsbury and TUI Travel are seen to be at high risk if Scotland exits.

Peter Elwin, of JP Morgan, believes that companies can mitigate the financial impact of Scottish independence by splitting their pension schemes, or by buying out the liabilities relating to either Scottish members, or those in the rest of the UK.

According to Peter, it is legally possible to split the schemes, but the process is complicated and will take time to achieve. While buying out the liabilities is a simpler option, it is likely going to prove unaffordable.

The latest warning from JP Moran follows the claim of the HSBC Chairman that ‘Scottish independence could trigger a capital flight from the country’ and that of Citi group who have described the ‘yes’ vote as a ‘high-risk event’.

If Scots vote ‘yes’ for their independence on September 18, then Scotland would aim to become an independent state by March 2016.

If you would like to have more information on how Scottish independence might affect your pensions, or if you would like to seek advice from a pensions expert, please contact us at hello@expatsipp.com.