Low life expectancy and pension funding

For decades, Scots have had the worst health in the United Kingdom. Three year ago, the number of people dying aged under 75 in Scotland dropped by 2 per cent, continuing a steady fall that has been under way since the early 1990s.

However, people aged under 75 living in the poorest tenth of Scottish society in its most deprived districts – places such as Ferguslie in Paisley, for example; or Possil and Keppochhill in Glasgow – are 3.7 times more likely to die in any one year than those living in its richest districts.

Since 1951, life expectancy for men has risen from 64.4 years to 75.8, while that of women rose from 68.7 years to 80.3.

In 1980, a man retiring at 65 could expect to live for barely over four years, while women, retiring at 60, could expect 15 years.

Five years ago, a man retiring at 65 could expect to live for 10.8 years, while a woman quitting work at 60 could expect a further 20.3 years of life. However, there is a difference between life expectancy and how long one lives in good health. In this respect, Scotland is doing badly.

Healthy old age

The finance committee of the Scottish Parliament in Holyrood last year warned that not only does Scotland have one of the lowest life expectancies in western Europe but “the gap between life expectancy and healthy life expectancy has, for men, actually been widening”.

The number of pensioners will rise by over half a million in just 20 years to hit 1.4 million. Meanwhile, Scotland’s total population will rise by then to 5.7 million, and it should hit six million 15 years after, according to the National Records of Scotland office.

Such actuarial numbers matter in the Scottish independence referendum debate, amid charge and counter-charge over how much Scotland can afford to pay in pensions if it decides to go it alone on September 18th.

Most of the extra numbers predicted to be living in Scotland in 20 years will be immigrants. Currently, Scotland receives about 7,000 a year, but Scottish first minister Alex Salmond is banking on that number rising to 24,000.

The contrast is striking between Salmond’s attitude and that in England, where immigration is increasingly a toxic issue. For Scotland, however, immigration, particularly in an independent Scotland, will be a necessity if future pension bills are to be met.

The future of pensions – the state one given to all; the public service one paid to those who spent a lifetime in the state’s employ; and also, private ones – are all featuring in the independence debate as Scots edge closer to decision.

Pension burden

The Scottish government has vowed the basic state pension would be paid “on time and in full” after an independent Scotland went its own way in March 2016. After that, it promises £160 a week.

Numbers can hide cruel realities, however. Because Scots die younger the State pension age will not have to rise to 68 until 2045, if a situation where people spend a third of their life retired is to be avoided. In England, with longer life expectancy, that will have to happen by 2032. Despite lower life expectancy levels, however, Scotland is ageing faster, the Pensions Policy Institute told the Scottish parliament recently, warning an independent Scotland would “find it more difficult” to afford to keep the same pension rules as the rest of what would be then the disunited UK.

Unravelling pension rights of Scots if there is a Yes vote will be a gargantuan task. Not everything could be done immediately. It could take years to disentangle some elements, notably the accrued rights built up by those working in the civil service and the military.

No changes would be required for the funding of local government, police and fire brigade pensions, or for those who worked for any devolved body, such as the National Health Service, or teachers, since responsibility would fall on Edinburgh.

However, those campaigning for the link with the rest of the UK to continue warn that defined-benefit schemes in Scotland would face an immediate and catastrophic shortfall, since companies operating on both sides of a new border must be fully funded under EU rules.

By contrast, defined schemes operating in a single state have 10 years to put in place “recovery plans” to deal with deficits, though even that leeway has done little to halt the drift from defined-benefit to less-generous defined-contribution pensions.

Administrative challenge

The Scottish government has said the rules offer flexibility and transition agreements could be negotiated, promising to start negotiations with Westminster and Brussels “as soon as possible” after a Yes vote.

Agreements are possible or probable, depending on one’s view, but not before polls close: “It is difficult to quantify the potential impact on funding requirements in the absence of any clarity on this issue,” says the National Association of Pension Funds.

Series concluded