The UK's universities could face an immediate pensions shortfall of nearly £10bn if Scotland votes for independence next year, leaving the pensions fund in crisis.
The Universities Superannuation Scheme (USS), which manages funds worth £34bn to pay pensions to hundreds of thousands of lecturers and staff, has warned that EU pensions laws have "considerable implications" for its viability.
Under EU rules on cross-border pensions, funds are not allowed to carry deficits and must be fully funded at all times, experts have warned. The rules are extremely strict for schemes that operate across international borders.
The USS, which is the UK's second largest pension fund, manages funds for nearly 288,000 university staff across the UK and tens of thousands of existing pension recipients. Universities Scotland, the sector's umbrella body, has identified a £9.8bn shortfall in USS's total liabilities.
The fund has a 10-year programme to address that deficit but it fears that a yes vote in next year's Scottish independence referendum could force it to make good that shortfall immediately, putting the UK's universities under intense pressure to bridge the gap from existing resources.
The disclosure has intensified a conflict between the Scottish government and critics of independence over the alleged risks that independence would present to pensioners and businesses, particularly those using final salary schemes such as the USS.
The Institute of Chartered Accountants of Scotland (ICAS) has warned that splitting up the UK's integrated pensions system after independence would be immensely costly because of EU rules, potentially forcing some firms into bankruptcy.
The Scottish government has resisted this argument, arguing that EU rules can allow cross-border schemes a period of grace to make good deficits. The UK and Ireland have special cross-border arrangements which gave affected companies three years to fill deficits, and the same could be used for Scotland.
However, USS said that a three-year grace period would still be far too short to bridge the £9.8bn gap. "One possible risk presented by the ICAS report is if funds like this were to be determined by cross-border rules, there's a possibility we would have to find all the funds upfront, which is potentially serious," a spokesman said.
He said USS was investigating the full implications of EU rules and assessing the scale of the risk. "Funds will be looking for more clarity on how exactly this will impact them," he said. "Some of it remains unclear on exactly how it will apply."
Alex Salmond, the first minister, and other Scottish ministers insist that the EU would never allow an independence vote to damage the economy or harm big institutions and would search for as much flexibility as possible.
A yes vote would be the first time any EU member has split up peacefully, and would require a new set of transition arrangements that would be expected to deal with problems of this type.
Gregg McClymont, Labour's shadow UK pensions minister, said that was wishful thinking which avoided answering hard questions about precisely how these problems would be solved.
"The risk to Scots pensions from separation cannot be wished away and the time for assertion is over. ICAS are clear we need a credible response on these issues," he said.
"Everyone operating final salary schemes across the UK, like the USS, will have to find billions of pounds overnight in the event of a vote for separation. The only other option will be separating out liabilities and closing schemes in Scotland."
A Scottish government spokeswoman said this was a well-understood area. "The UK already has measures in place for cross-border schemes to ensure there is no impact on pensions," she said.
"The provision for and payment of private-sector occupational pensions would continue in an independent Scotland. The cross-border management of pensions is commonplace across the EU and they are something the EU wants to encourage more of.
"Indeed, the UK already has such schemes with Ireland. An independent Scotland would of course comply with all EU regulations on these matters."
Scottish independence could leave UK universities with £10bn pensions deficit | Politics | theguardian.com
The Universities Superannuation Scheme (USS), which manages funds worth £34bn to pay pensions to hundreds of thousands of lecturers and staff, has warned that EU pensions laws have "considerable implications" for its viability.
Under EU rules on cross-border pensions, funds are not allowed to carry deficits and must be fully funded at all times, experts have warned. The rules are extremely strict for schemes that operate across international borders.
The USS, which is the UK's second largest pension fund, manages funds for nearly 288,000 university staff across the UK and tens of thousands of existing pension recipients. Universities Scotland, the sector's umbrella body, has identified a £9.8bn shortfall in USS's total liabilities.
The fund has a 10-year programme to address that deficit but it fears that a yes vote in next year's Scottish independence referendum could force it to make good that shortfall immediately, putting the UK's universities under intense pressure to bridge the gap from existing resources.
The disclosure has intensified a conflict between the Scottish government and critics of independence over the alleged risks that independence would present to pensioners and businesses, particularly those using final salary schemes such as the USS.
The Institute of Chartered Accountants of Scotland (ICAS) has warned that splitting up the UK's integrated pensions system after independence would be immensely costly because of EU rules, potentially forcing some firms into bankruptcy.
The Scottish government has resisted this argument, arguing that EU rules can allow cross-border schemes a period of grace to make good deficits. The UK and Ireland have special cross-border arrangements which gave affected companies three years to fill deficits, and the same could be used for Scotland.
However, USS said that a three-year grace period would still be far too short to bridge the £9.8bn gap. "One possible risk presented by the ICAS report is if funds like this were to be determined by cross-border rules, there's a possibility we would have to find all the funds upfront, which is potentially serious," a spokesman said.
He said USS was investigating the full implications of EU rules and assessing the scale of the risk. "Funds will be looking for more clarity on how exactly this will impact them," he said. "Some of it remains unclear on exactly how it will apply."
Alex Salmond, the first minister, and other Scottish ministers insist that the EU would never allow an independence vote to damage the economy or harm big institutions and would search for as much flexibility as possible.
A yes vote would be the first time any EU member has split up peacefully, and would require a new set of transition arrangements that would be expected to deal with problems of this type.
Gregg McClymont, Labour's shadow UK pensions minister, said that was wishful thinking which avoided answering hard questions about precisely how these problems would be solved.
"The risk to Scots pensions from separation cannot be wished away and the time for assertion is over. ICAS are clear we need a credible response on these issues," he said.
"Everyone operating final salary schemes across the UK, like the USS, will have to find billions of pounds overnight in the event of a vote for separation. The only other option will be separating out liabilities and closing schemes in Scotland."
A Scottish government spokeswoman said this was a well-understood area. "The UK already has measures in place for cross-border schemes to ensure there is no impact on pensions," she said.
"The provision for and payment of private-sector occupational pensions would continue in an independent Scotland. The cross-border management of pensions is commonplace across the EU and they are something the EU wants to encourage more of.
"Indeed, the UK already has such schemes with Ireland. An independent Scotland would of course comply with all EU regulations on these matters."
Scottish independence could leave UK universities with £10bn pensions deficit | Politics | theguardian.com
