Large parts of the UK’s pensions and investment community are breathing a huge sigh of relief today as Scotland voted ‘no’ on independence last night, preventing the shattering of a 300-year union.
The shunning of Alex Salmond’s quest to take Scotland away from the union by 55% of voters has, for the time being at least, eased the concerns of many investment firms and pension funds over the added cost and complexity linked to pension schemes operating across the Scottish border.
Had the nation voted ‘yes’ and Scotland was declared an EU or EEA country, then we could have seen cross-border pension schemes being forced to meet stricter funding requirements. In such instances, a pension scheme with members in two or more EEA member states is required to be fully-funded at all times, which would have provided a real headache to the trustees of such schemes. Furthermore, schemes with the increasingly popular asset-backed contributions which currently use a Scottish limited partnership structure would have faced the prospect of having to unwind such structures.
As well as pensions, last night’s no-vote also calmed wider markets which have been increasingly jittery in recent weeks. Indeed, this morning the FTSE 100 was powered by Scottish firms, notably financials including Aberdeen, Lloyds, RBS and Standard Life. Meanwhile, sterling was up to 1.65 against the US dollar, from 1.62 at the start of the week.
However, while the immediate threat of a fraction with Scotland might have disappeared, there still remain unresolved issues around the additional devolved powers promised to Scotland by Westminster in the run up to the referendum. The Prime Minister today announced that Lord Smith of Kelvin will oversee the process to take forward devolution commitments with powers over tax, spending and welfare, all to be agreed by November and draft legislation published by January.
It is, of course, likely that Scotland will seek to use these powers and should differences arise in legislation and taxation between Scotland and the rest of the UK, this will lead to complications for administering pension schemes with members in both regions – and therefore increased costs.
Additionally, the fact the ‘no’ camp lacked an overwhelming majority exposes UK to future referendums if the dissolved powers aren’t effective in winning Scotland round. The spotlight will now be firmly placed on central government and David Cameron’s position will be under pressure from within his own ranks. Many will feel he conceded too much under pressure at the end and will give EU-sceptics ammunition to attack him over leaving the EU.
For now however, it is largely business as usual – and from an economic backdrop the outlook for the UK is relatively strong. Let’s hope it lasts, but investors should not become complacent about the union remaining intact.
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