In this article, members of the Scottish Currency Group (SCG) continue their series explaining how a separate Scottish currency can be introduced soon after independence, and the implications for the Scottish economy, Scottish Government, businesses and households.
The article reflects SCG views on the policies which the group believes should be adopted in the future.
What about my pension?
IT is highly likely that as part of independence negotiations with the UK Government, the Scottish Government will agree to take over the UK State Pension for anyone resident in Scotland on Independence Day. If that happens then the new Scottish State Pension will be paid in Scottish Pounds only.
The present Scottish government is committed to substantially increasing the old age pension after independence – the UK’s state pension is among the lowest in Europe. This means that your state pension will never be less than your current entitlement, and is likely to be considerably higher in S£.
Scottish public sector pensions (for example, Scottish Government, local authority, Scottish health service, fire service, etc.) will be paid in Scottish Pounds only after the launch of the new currency. UK civil servant pensions, for example from central departments such as the Foreign Office, will, unless negotiated otherwise, continue to be paid in GB£.
This would also apply to British Armed Forces pensions, unless the person involved is serving at the time of independence and transfers into the Scottish Armed Forces.
For the declining number of people lucky enough to have a private sector company pension then it is up to the pension scheme to decide. Where it is a Scottish company scheme then they are likely to change to pay in the S£ within a short period. Where it is an rUK scheme (e.g. British Airways), then it will probably continue to be paid in GB£.
Annuities, personal pensions and similar from rUK providers (e.g. Aviva) will probably be paid in GB£. Scottish providers (e.g. Scottish Widows) will probably offer the option to convert to receiving Scottish Pounds if you wish to do so.
Some large pension schemes (e.g. the universities’ USS) may choose to divide into a rUK and Scottish scheme, and thus allow Scottish pensioners to be paid in Scottish Pounds rather than GB£.
If you use an rUK pension provider, you may wish to move your pension fund to a Scottish provider if you want to avoid any exchange rate risk.
What about my ISA?
IF you have a cash ISA then it is up to you to decide whether to keep the money in GB£ or to exchange it into the Scottish Pound. There is no guarantee that the Scottish Government will continue the ISA scheme after independence so there might be tax changes.
If you keep your cash ISA in GB£ then it may become a foreign investment rather than a domestic Scottish one but it would still fall under the jurisdiction of Scottish tax law.
If you want to avoid exchange rate risks, you will be safer to exchange your GB£ cash ISA into Scottish Pounds.
Until such time as there is a Stock Exchange in Scotland then a stocks and shares ISA would remain in GB£ as the shares would be held in the London market.
What about other investments?
AT independence it is likely that all (or most) financial investments will be quoted on and held in markets in London, New York or elsewhere.
They will thus remain in the currency of whichever market they are held in.
There are some plans to open a Scottish Stock Exchange which would in time allow for some investments to be quoted in S£ and held in Scotland. This is likely to be attractive to companies with large interests in Scotland, for example Diageo.
There will be a new Scottish market in Scottish Government bonds. Thus anyone currently holding UK bonds will have the option to sell those and buy Scottish Government bonds (in S£) if they wish.
Holding Scottish Government bonds will probably be attractive to Scottish pension funds and institutional investors such as trusts.
What about the finance sector?
THERE are many finance companies in Scotland, such as Scottish Widows, Baillie Gifford and Abrdn. The S£ will have only a limited effect on them as their funds and investments will all stay in the current currencies, eg $.
They will pay costs such as wages and rent in S£, but their trading activities will stay as they are.
In order to service the Scottish market it is likely many of these companies will start to offer new products in S£, such as S£ life assurance, or a Government Bonds Investment Trust.
