Pensions

Lessons for Scotland in how newly independent countries boosted pensions

Stephen Richard — Fri, 05 Nov 2021 12:06:43 +0000

Lessons for Scotland in how newly independent countries boosted pensions

Primary Author or Creator

Believe in Scotland

Stephen Richard Fri, 11/05/2021 - 12:06

Alternative Published Date

2021

Category

Pensions

Type of Resource

Article

Fast Facts

UK state pensions are the least generous in North West Europe in comparison to the average wage.

More details

New analysis shows that UK state pensions are the least generous in North West Europe in comparison to the average wage. The analysis from the House of Commons library shows pensions in the UK are the lowest of our European neighbours as a proportion of pre-retirement wages.

UK pensioners receive around a quarter of the average working wage. In comparison pensioners in Luxembourg and Austria receive 90%.

A recent Believe in Scotland billboard campaign highlighted the fact that UK pensions are the lowest in the developed world as a percentage of final earnings.

Pensions, of course, have been one of the main areas of concern for those still considering whether to vote for independence. So how would an independent Scotland handle its pensions system and how successful is that system likely to be? One way to understand how pensions might be affected is to consider the way in which they have been handled and developed within newly independent countries.

This article will examine a number of newly independent country case studies, including the countries that formed after the collapse of the Soviet Union and Yugoslavia.

USSR

Many of the independent countries that have formed since 1990 were previously part of the Soviet Union. It is important to understand how the pension scheme operated before the Soviet Union collapsed. Four main stages contributed to the development of the pension security system in the USSR:

1) 1918 to 1920s: Introduction of the first Soviet Union social security programmes.

2) 1930 to early 1950s: Formation of the basic features of the social security system.

3) 1956 to mid-1960s: Pension reform.

4) 1970 to 1980s: Minor modifications to the existing system.

With reference to the third stage, a new law concerning state pensions was passed in 1956. This reform extended the coverage of the pension system, increased the benefit amount and reduced the gap between the minimum and maximum pension. On average, old-age pensions rose 100%, invalidity pensions 50% and survivors’ pensions 64%. The largest increases were felt among low-paid workers.

Old-age pensions in the USSR were based on past earnings (recent earnings, rather than lifetime earnings). The basic pension rate depended on the category of work and the level of earnings in the Soviet Union. For example, in 1973 the percentage of current average wage paid in old-age pension – based on current average earnings and 35 years of employment in ordinary conditions – was 55% for a single pensioner and 61% for a pensioner with one dependent.

AFTER INDEPENDENCE

Russian Federation

After the dissolution of the USSR and throughout the early 1990s, the Russian Federation state pension system was similar to the Soviet Union’s system and its general qualifying conditions. However, the law on state pensions in the Russian Federation in 1990 was the first step in changing Russia’s system and instigated the formation of a new type of pension system, fully independent from the state budget of the USSR.

Article 1 of the law stated that labour and its results were the main criterion for differentiated terms and norms in the pension system. As a result only two forms of pensions – labour and social – were created to replace the former multifaceted and multilevel pension system.

The modernisation of the social security system and improved living standards of the most disadvantaged citizens became the fundamental objective of social reforms held by the Russian Federation government

Under this law a new financial institution, the Pension Fund of the Russian Federation (PFR), was also founded to finance pension benefits through insurance contributions, as well as allocations from the state budget. The system is financed from contributions paid by insured persons and employers. The insured individuals pay 1% of their earnings and the employer pays 28% of the payroll. The PFR managed to stabilise the pension system, despite difficult circumstances. Moreover, the number of Russian pensioners grew, as creative workers, clerics, sole proprietors and other working groups who had previously not been included in the national pension system now met the qualifying conditions.

The modernisation of the social security system and improved living standards of the most disadvantaged citizens became the fundamental objective of social reforms held by the government with the direct participation of the Pension Fund of Russia.

Latvia

After its independence from the USSR Latvia started to reform its pension system. This involved an initial reform in 1990. The reformed system retained much of the Soviet pension system qualifying conditions for years after independence.

Latvia currently operates a three-pillar pension system. The first pillar is a Pay as You Go (PAYG), notional defined contribution (NDC) system, the second is a funded mandatory pillar and the third pillar consists of private voluntary occupational and individual pension arrangements.

In this article we will focus on public pensions – the first pillar. Reform of the first pillar took place in 1996 due to low retirement ages, widespread early retirement, the evasion of social security contribution and demographic change. The new system created a strong link between contributions and benefits. Indeed, NDC pension systems offer participants a hypothetical account in which all the contributions that are made throughout their working life are held. At the time of retirement, benefits are calculated by dividing the amount accumulated in the account by the cohort life expectancy.

The new Latvian system has been considered radical and hugely successful. It offers something for all key stakeholders: it exposes what is normally hidden in a traditional pension system, revealing the cost of providing guarantees and benefits. It is flexible and adjusts to demographic and economic changes. This highlights that while the transition of the pensions system may be gradual after independence, it can also be hugely successful.

YUGOSLAVIA

The pensions system in Yugoslavia was based on the PAYG model, in which investment, level of earnings and the duration of insurance determines the benefits of the pension. Since the collapse of Yugoslavia, the countries that constituted this region adopted similar systems.

Croatia

Here the PAYG system was in place until 1998. However, it was clear that it was unable to deal with shocks due to low retirement age, a weak link between contributions and benefits, and the overly generous benefits. As a result, major pension reforms were initiated in a gradual, step-by-step manner. The Croatian government implemented reforms of the PAYG system in 1999 and introduced mandatory and voluntary pension funds in 2002.

The 1999 reform was the first step towards introducing a three-pillar system. That year Croatia reformed public pensions and set out to achieve financial sustainability and cost containment. By 2009 retirement age had gradually been increased, reaching 65 for men and 60 for women. The minimum early retirement age was also raised and the benefit deductions for early retirement were increased.

While the pension system may not suddenly change when a country becomes independent … changes are possible and have brought great successes for many newly independent countries

Slovenia

Slovenia also inherited the legislation of its pension system from the former Yugoslavia and soon after independence initiated its transformation from worker self-management to a modern market economy. Slovenia conducted relatively mild reforms and preserved the old pensions insurance system in which pensions are dependent on earnings and contributions. Indeed, the first pillar of Slovenia’s pension system is based on the PAYG model. Certain significant reforms were established after 2000, including raised age limits and maximum pension restrictions. Slovenia is now one of the richest Central and Eastern European countries and its pension system is very similar to Western European countries.

Across all of these examples, it has been clear that while the pension system may not suddenly change when a country becomes independent, and aspects of its former system may be retained, changes are possible and have brought great successes for many newly independent countries.

Net pension replacement rates

It is interesting to consider the net pension replacement rates in these newly independent countries to see exactly how successful the reforms and pension systems have been. To offer a comparison, we have included the net pension replacement rate of the UK.

Country Net Pension Replacement Rate

Russia 57.0

Latvia 54.3

Croatia 53.8

Slovenia 57.5

UK 28.4

This table clearly highlights a significant difference between the net pension replacement rate of these newly independent countries and the UK. This suggests that the various reforms and new pension systems have benefitted the citizens of these countries.

Conclusions

To conclude, these country case studies have demonstrated that change in pension systems is not always immediate after a country becomes independent and aspects of the former pension scheme may be continued. However, it has also been clear that positive changes and reforms are possible and have benefitted these newly independent countries and their aged population. Therefore, it appears likely that an independent Scotland would manage public pensions successfully and, similarly to other independent countries and would be able to raise the net pension replacement rate to one more aligned to thr rest of Europe.

Resource Address (URL)

https://www.believeinscotland.org/lessons-for-scotland-in-how-newly-independent…

Keywords

Pensions

Language English

Better Pensions

Stephen Richard — Thu, 04 Nov 2021 18:02:02 +0000

Better Pensions

Primary Author or Creator

Believe in Scotland

Stephen Richard Thu, 11/04/2021 - 18:02

Category

Pensions

Type of Resource

News Media

Fast Facts

The UK has the worst state pension in the developed world (defined as full OECD membership). In 2018, it was only worth 28.4% of average income at retirement (based on the net replacement rate). The EU average percentage is more than double that of the UK pension.

More details

The only country who’s data was compared by the OECD to pay a lower net replacement rate percentage is South Africa. A country which is not yet considered a developed nation and has the highest rates of inequality in the world, with more than half the population living in poverty.

Our priorities will be different, we can end pensioner poverty in an independent Scotland. We have asked the leadership of both the Scottish Greens and the SNP to commit to an initial rise from £137.60 per week for the basic state pension to £200 per week, then raising the state pension further to match the EU average as our economy grows with the powers of independence.

Lorna Slater the Co-Leader of the Scottish Green party told us “of course we will, why wouldn’t we”.

And

The 2019 SNP Conference voted in favour of a motion that in an independent Scotland, the Scottish Government should create a plan to increase the Scottish state pension (following independence) to the EU average, effectively doubling it. The 2020 SNP Conference backed a plan to raise the basic state pension to £175.00 per week for everyone but we say that’s still not enough.

Pensions are in danger in the UK as the UK Government is cutting pensions protections and this will make Scottish pensioners about £500.00 a year worse off.

Progress towards matching the European average will have to be achieved through a staged process. We are calling on the Scottish Government to commit to an instant increase in the state pension (in an independent Scotland) to £200.00 a week and then to implement a staged plan of rises till pensioner poverty is eradicated. We have calculated the basic amount a pensioner requires to live with dignity, to afford the right food and to be able to heat their homes is £200 a week – its not enough but it is a start.

Independence will lift the weight of the UK Governments generational economic mismanagement from Scotland and as our economy grows we will be able to continuously improve the state pension over time until reaches an acceptable level.

Independence is the only realistic option if you want to protect pensions and end pensioner poverty. Only through independence can we afford to end pensioner poverty, as its the cost of being part of the UK that is holding our economy back.

Believe in Scotland is the community for people who live in Scotland and who believe that Scotland’s future should be decided by the people of Scotland. We are also Scotland’s most active, most effective, and most successful independence campaigning group.

We support independence, not for politics but for the people, as a means to an end of building a better Scotland.

Keywords

Pensions

Language English

RETIREMENT LIVING STANDARDS UPDATED TO REFLECT EXPECTATIONS CHANGED BY LOCKDOWN

Stephen Richard — Mon, 25 Oct 2021 08:38:15 +0000

RETIREMENT LIVING STANDARDS UPDATED TO REFLECT EXPECTATIONS CHANGED BY LOCKDOWN

Primary Author or Creator

Pensions and Lifetime Savings Associaton

Stephen Richard Mon, 10/25/2021 - 09:38

Date Published

Tue, 10/12/2021 - 12:00

Category

Pensions

Type of Resource

Press release

Fast Facts

State pensions are the lowest in OECD countries.

Resource Address (URL)

https://www.believeinscotland.org/revealed-uks-paltry-pension-cant-provide-even…

Keywords

Pensions

Language English

Revealed: UK’s paltry pension can’t provide even the most basic standard of living

Stephen Richard — Mon, 25 Oct 2021 08:28:18 +0000

Revealed: UK’s paltry pension can’t provide even the most basic standard of living

Primary Author or Creator

Believe in Scotland

Stephen Richard Mon, 10/25/2021 - 09:28

Date Published

Wed, 10/13/2021 - 12:00

Category

Pensions

Fast Facts

The UK state pension is not big enough to support the bare minimum standard of living for a single person, according to a new report. And it warns that a quarter of employees are not on track to be able to afford it.

More details

A report from the Pensions and Lifetime Savings Association gives the information for this headline. It can be accessed here: https://www.plsa.co.uk/press-centre/news/article/retirement-living-standards-updated-to-reflect-expectations-changed-by-lockdown-living

Resource Address (URL)

https://www.believeinscotland.org/revealed-uks-paltry-pension-cant-provide-even…

Keywords

Pensions

Living standards

Retirement

Language English

Revealed: UK’s paltry pension can’t provide even the most basic standard of living

Stephen Richard — Wed, 13 Oct 2021 15:54:18 +0000

Revealed: UK’s paltry pension can’t provide even the most basic standard of living

Primary Author or Creator

Believe in Scotland

Stephen Richard Wed, 10/13/2021 - 16:54

Date Published

Wed, 10/13/2021 - 12:00

Category

Pensions

Type of Resource

Blog

Fast Facts

OECD figures in 2018 showed the UK paid out just 29% of average earnings on pensions. This is the lowest of any developed country. Top of the table were the Netherlands, which pays 100.6% of average earnings, Portugal at 94% and Italy at 93.2%. Blair McDougall - formerly of Better Together - has suggested the UK cannot afford to pay a pension capable of supporting the most basis standard of living for a single person. In fact, he thinks that even the suggestion that the UK can afford it is laughable.

Resource Address (URL)

https://www.believeinscotland.org/revealed-uks-paltry-pension-cant-provide-even…

Keywords

Pensions

Language English

THE IMPACT OF SCOTTISH INDEPENDENCE ON TAX, PENSIONS AND FINANCIAL SERVICES

Stephen Richard — Mon, 04 Oct 2021 18:20:41 +0000

THE IMPACT OF SCOTTISH INDEPENDENCE ON TAX, PENSIONS AND FINANCIAL SERVICES

Primary Author or Creator

Clifford Chance

Stephen Richard Mon, 10/04/2021 - 19:20

Alternative Published Date

August 2021

Category

Taxation

Pensions

Finance

Type of Resource

Assessment report

Length (Pages, words, minutes etc...)

7pp

Fast Facts

The most likely overall outcome for taxation is that rUK would treat Scottish individuals and companies in the same way as it treats any other country's individuals and companies (and vice versa). Scotland will need to establish its own financial regulator and resolution authority and make arrangements for continuing the licences and supervision of Scottish firms. Arrangements for pension investments and payments will be required.

Resource Address (URL)

https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2021/08/the…

Keywords

Taxation

Financial regulation

Pensions

Language English

What happens to pensions after a Yes vote? Open Minds on Independence #9

Stephen Richard — Thu, 23 Sep 2021 08:39:34 +0000

What happens to pensions after a Yes vote? Open Minds on Independence #9

Primary Author or Creator

Believe in Scotland

Stephen Richard Thu, 09/23/2021 - 09:39

Additional Author(s) / Creators

The National

Date Published

Sat, 03/13/2021 - 12:00

Category

Pensions

Type of Resource

News Media

Fast Facts

Far from putting pensions at risk, independence gives us the chance to significantly increase the state pension. Even If we only match the European average that would double the current state pension. The UK could easily afford to do so but chooses not to, to help their friends in the City financial sector.

More details

the Scottish Government in 2013 states: “Everyone currently in receipt of the basic state pension, graduated retirement benefit, state earnings-related pension scheme or the state second pension would receive these pensions as now, on time and in full.”

he cost of providing a pension in Scotland is currently around 6-8% cheaper than in the rUK because of lower life expectancy. Scottish Government figures suggest the taxation raised in Scotland is sufficient to pay for all services currently devolved as well as cover the pension and social security arrangements paid in Scotland by the UK Government.

So the cost of pensions to an independent Scottish Government would be lower than, or at most the same as, they are right now until the Scottish Government decided to increase the amount paid. There are currently no significant additional pensions costs to the Scottish Government associated with independence.

Resource Address (URL)

https://www.thenational.scot/news/19158208.open-minds-9-pensions-will-protected…

Keywords

Pensions

Language English

The UK's worst state pension in developed world. Open Minds on Independence #8

Stephen Richard — Thu, 23 Sep 2021 08:34:09 +0000

The UK's worst state pension in developed world. Open Minds on Independence #8

Primary Author or Creator

Believe in Scotland

Stephen Richard Thu, 09/23/2021 - 09:34

Additional Author(s) / Creators

The National

Date Published

Wed, 03/10/2021 - 12:00

Category

Pensions

Type of Resource

News Media

Fast Facts

The UK state pension is the worst in the developed world in terms of its value verses average wages. It ranks bottom in a list of countries compiled by the Organisation for Economic Co-operation and Development (OECD), paying out just 29% of the average wage.

More details

Top of the pension table in the data is the Netherlands (100.6%), followed by Portugal (94%) and Italy (93.2%). The second worst is Mexico (29.6%) but it is quite a jump to the third worst, Poland, which pays 38.6% of the average wage. The average pension of all the countries on the list is 62.9%.

Thus the drop in earnings from employed to retired in the UK is the largest in the developed world. That isn’t because the UK can’t afford pensions or that the UK economy isn’t strong enough to survive if we decided to end pensioner poverty. It is a political decision and the UK Government simply has a policy of not paying a good pension.

Resource Address (URL)

https://www.thenational.scot/news/19148278.open-minds-8-uk-pays-worst-state-pen…

Keywords

Pensions

Language English

Divest¦Reinvest: Scottish Council Pensions for a future worth living in

Stephen Richard — Tue, 07 Sep 2021 07:54:51 +0000

Divest¦Reinvest: Scottish Council Pensions for a future worth living in

Primary Author or Creator

Ric Lander

Stephen Richard Tue, 09/07/2021 - 08:54

Additional Author(s) / Creators

Flick Monk, Friends of the Earth Scotland, Unison Scotland, Common Weal

Alternative Published Date

March 2017

Category

Pensions

Local government

Type of Resource

Policy Paper

Fast Facts

A report by Common Weal, Friends of the Earth Scotland and Unison Scotland into divestment of Scottish pension funds from fossil fuel companies and re-investment into socially and environmentally useful investments.

More details

― Scotland’s councils continue to invest in the companies most responsible for climate change, holding a £1,683 million stake in fossil fuel companies through their pension funds.

― 4.8% of the Scottish Local Government Pension Scheme is invested in fossil fuels – £3,300 for every scheme member. £543 million is directly invested in oil and gas and £113 million in coal. The majority of holdings, £1,046 million, were invested through intermediaries.

― Councils invest in BP, who are fracking and drilling for oil in the Arctic as well as having a history of campaigning against subsidies for renewable energy, and BHP Billiton, the 12th largest extractor of coal in the world, currently mining in the centre of the Borneo rainforest and facing prosecution over Brazil’s worst ever environmental disaster.

― Only three councils were found to be actively investing in socially and environmentally beneficial projects. The Strathclyde, Falkirk and Lothian Pension Funds invest a combined £234 million in renewable energy and social housing. Although encouraging, this represents just 0.7% of the Scotland-wide scheme’s value.

― Pension funds are some of the largest investors in the world and with auto-enrolment requiring more people than ever to join a pension, the money put aside for our retirement is set to become even more powerful. Pension funds are dependent on the future of the world economy and have the power to shape it. Councils must be willing to influence the pensions industry to ensure we all have a future worth retiring for.

― Scotland’s local councils run the Scottish Local Government Pension Scheme, a £35.4 billion pension scheme with 505,769 members. The scheme’s advisory board estimates one in five of the population have a financial interest in the fund.

― 335,000 households are on social housing waiting lists in Scotland and we are undergoing massive job losses in North Sea oil and gas, where production peaked in 1999.

― Scotland has been leading the fight against climate change with world-leading legislation and carbon emissions falling considerably over the last 10 years. In 2015 world leaders, recognising that the burning of fossil fuels is damaging the earth’s ability to support life, signed a historic treaty aimed at limiting global warming to 1.5°C.

― As the world shifts away from fossil fuels and towards renewable energy Scotland can continue to lead the way in tackling climate change by taking money out of fossil fuels and putting it back into local economies and sustainable jobs. The Governor of the Bank of England has warned that the vast majority of fossil fuel reserves are unburnable if climate change is to be limited to safe levels as pledged by the world’s governments.

― Because the value of fossil fuel companies is directly linked to the amount of coal, oil and gas that companies can burn, any action that governments take to tackle climate change threatens the future profitability of fossil fuel companies. This makes climate change a clear financial concern for investors.

― Some investors are taking bold action to limit climate change and the risks it brings by divesting from fossil fuels and reinvesting in sustainable projects. Eight universities and churches in Scotland have made a commitment to cut their investments in fossil fuels along with five pension funds elsewhere in the UK. Across the world 701 institutions, with total investments valued at $5.5 trillion USD, have divested.

― No Scottish councils have any made a commitment to divest from fossil fuel companies. In fact the majority have never even discussed climate change and the risks it poses to their pension funds. Those who have, have done little to change what they invest in instead falling back on the practice of ‘engagement’ – persuading fossil fuel companies to transition to renewable energy – an approach to climate risk which has been widely debunked.

― Ignoring climate change won’t make it go away. Council pension funds that fail to act on climate change will risk heavy losses and face the possibility of a legal challenge. If investors continue with business as usual the risk of financial and environmental catastrophe will only grow.

― A public commitment to divest, such as that made by the London Borough of Waltham Forest or the University of Glasgow, limits exposure to risks and promotes the wider action on climate change we need to bring about a sustainable economy. Reinvesting in social housing and renewable energy will also help build sustainable local economies here in Scotland. This is something councils can do right now, within their existing structures.

Resource Address (URL)

https://commonweal.scot/wp-content/uploads/2020/09/Divest%C2%A6Reinvest.pdf

Keywords

Climate change

pension fund investments

Scottish Local Government Pension Scheme

Local Government

Language English

Lessons for Scotland in how newly independent countries boosted pensions

Bill — Wed, 07 Jul 2021 19:31:02 +0000

Lessons for Scotland in how newly independent countries boosted pensions

Primary Author or Creator

Believe in Scotland

Bill Wed, 07/07/2021 - 20:31

Date Published

Thu, 07/01/2021 - 12:00

Category

Pensions

Type of Resource

Web site

Fast Facts

What other newly independent countries have done to increase pensions

More details

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Resource Address (URL)

https://www.believeinscotland.org/lessons-for-scotland-in-how-newly-independent…

Keywords

Pensions

Scotland

Newly indepenent countries

Language English