Scottish independence could cause “significant disruption” to the UK pensions industry, Treasury has warned.

The Treasury has issued a report stating pension providers would have to ensure their products address the change in tax system resulting from Scottish independence. Any differences that develop in pension policy as a result of the change would also have to be addressed.

“Pensions and life insurance products are designed to be fit for purpose for the market in which they operate,” the report said “Pensions schemes are subject to a number of social and labour laws that set the rules on benefits, contributions, access, investments and management. These are all areas in which divergence could occur if Scotland were to become independent from the UK.”

Employers are currently able to provide defined benefit schemes across the UK, but the Treasury says Scottish independence would see these become cross-border schemes. Treasury warns this would increase costs and create administrative issues relating to different funding requirements in the two states.

The Institute of Chartered Accountants of Scotland (ICAS) recently stated that the “potential impact on funding requirements for employers operating defined benefit or hybrid schemes across the UK is likely to be substantial”.

Setting up the parallel regulatory bodies required if Scotland became independent would be “less efficient and cost effective overall” than the current position, Treasury said.

The report warned defined benefit schemes in Scotland would not be protected by the Pension Protection Fund (PPF), and Scotland would have to create its own ‘lifeboat fund’ analogous to that of the system in place in the UK.

The PPF is able to pool risk across a current and diverse market at the moment, but Scottish independence would lead to a “fragmentation of responsibility for consumer protection”, Treasury warned.

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