Members of defined benefit pension funds in Scotland would not be able to depend on the safety net of the U.K.'s Pension Protection Fund in the event of a “yes” vote in this September's referendum for Scottish independence, warned Danny Alexander, the chief secretary to the Treasury.
“In the event of independence, members of defined benefit schemes here in Scotland would no longer be protected” by the PPF, which takes on the pension obligations of insolvent companies, said Mr. Alexander at the National Association of Pension Funds annual investment conference in Edinburgh on Friday. “Of course the Scottish government could, and I expect would, set up their own protection fund. But unlike now, where the risks are spread across the U.K., across a large number of schemes, the number of providers in an independent Scottish state would be much lower, which would mean the cost of a scheme becoming insolvent would be spread across a much smaller base.”
These costs, he said, might have to be passed on to fund members, therefore eroding the value of the pension plans.
Mr. Alexander also echoed warnings about the potential departures of businesses from Scotland in the event of a “yes” vote.
“Scotland has built a hugely successful pension and financial services sector right here in Edinburgh — Scottish businesses built on British foundations,” he said.
He referenced warnings from Standard Life, Royal Bank of Scotland and other firms with headquarters in Scotland during the past few weeks that an independent Scotland would lead them to relocate.
A spokeswoman for the PPF was not available to comment by press time.
