ONE of the ambitions of the Scottish independence movement is to increase the state pension. The UK is notorious for its meagre state pension provision – the lowest in Europe and one of the lowest in the developed world. Achieving this ambition depends on having our own currency.

Payment of state pensions contributes to fiscal deficits. While some of such a deficit can be reduced by recovering some of the money through taxation, unless we have our own currency and the possibility of financing the payment of state pensions through our own central bank, then the Scottish government would be forced to borrow in another currency.

A foreign debt burden would severely limit Scotland’s freedom of action in managing our own economy. Borrowing from foreign banks or other financial institutions would leave us at their mercy and unable to control the rate of interest at which our government borrows.

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Debt and to whom it is owed is the key determinant of whether national independence is real.

Although GERS figures must be treated with caution, in 2022-23 the state pension paid in Scotland cost £9.3 billion according to GERS. Doubling it to the EU average would, therefore, cost a further £9.3bn, which is equivalent to between 4% and 5% of current Scottish GDP.

Delivering this improvement in pension provision with our own currency and central bank would be a huge step forward but it would not resolve a wider range of issues relating to pension provision.

The state pension is a flat rate pension and even if it were set at a level equivalent to the median income of Scottish workers, it would still result in a significant drop in income after retirement for at least 50% of the population.

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This is why a majority of people take out some sort of second pension – mostly through employer-based schemes (“occupational pensions”).

There is a strong case for Scotland to use the opportunities that will come with independence and having our own currency to radically rethink the future of pensions in Scotland.

We should aim to provide everyone with a pension related to their earnings – a form of national “defined benefits” pension system. This would involve reform of the state pension into an earnings-related system instead of a flat-rate pension.

Many of us already have savings in some sort of second pension fund.

In total, the value of Scottish workers’ assets in these funds collectively is something in the region of £200bn. One way to create an earnings-related pension system would be to establish a National Pension Fund (NPF) into which Scottish citizens can transfer their pension assets in return for a guaranteed earnings-related pension.

That guarantee can be provided by the Scottish government if we have our own currency.

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In this new system the NPF would provide the first level of earnings-related pension, which would then be topped up by the state. For example, if the NPF was designed to provide a pension of 50% of earnings, this could be topped up to 80% by the state. Decisions of the ratio of pension to earnings are a matter for democratic choice.

This reform would result in the reversal of how pensions are provided – it would be the state providing the top-up element rather than the basic element.

Having our own currency would provide us with a great opportunity to start to think differently about important issues such as pension provision in an independent Scotland. There isn’t space here to go into the issues relating to the precise design of an NPF. However, its formation could be based on the replacement of National Insurance contributions with national pension contributions payable by both employers and workers, beginning with young people just starting work (at 18 for example).

Existing workers would have the choice of joining by transferring whatever assets they had in existing pension funds and staring to make national pension contributions.

Pension scheme transfers are already quite common within the existing pension system when workers change jobs.

One advantage of an NPF is that it will no longer be necessary to change pension scheme when changing jobs as all employers and workers will be paying into the one fund.

Another advantage is that employers would no longer carry the responsibility of and risks associated with guaranteeing the pension benefits promised by defined benefit schemes where they still exist.

For workers in “defined contribution” schemes, membership of an NPF would free them from the risks associated with the investment of their personal “defined contribution” scheme savings.

An NPF would mean that risks would be shared collectively and also underwritten by the government and its power to spend, derived from having our own currency, without any need to borrow from the global money markets.