Why we believe these fears about post-indy pensions are unfounded
By Google News Personal Finance ·
OVER the last couple of weeks, the currency question has been back in the spotlight, because of the Scottish Currency Group conference and the Laurentjoye Report.
Concerns have been expressed again over the value of a Scottish pound (Sc£) and the effect of a depreciation on pensions.
S Beaton’s letter in The National on October 23 voiced these concerns (“There are too many ifs, buts and maybes regarding pensions”).
It is correct that a workplace pension being paid in GB£ would continue to be paid in GB£, not in the Sc£.
In order to pay taxes and to purchase goods and services in Scotland some of that GB£ pension would have to be exchanged into Sc£ and the amount of Sc£ that is received in exchange for the GB£s depends on the exchange rate at the time.
It is impossible to predict the exchange rate of a currency a week ahead, never mind several years.
But, having said that, the Scottish Currency Group does accept that there is a possibility of some moderate depreciation of the Sc£ in the first few years before a recovery to par (Sc£1 = £1) and possible appreciation afterwards.
This is because we think that the Scottish “current account” will be in deficit at independence, largely because of the large outflows of profits earned by foreign investors.
These outflows can be reduced before independence by investing in ourselves instead of relying so much on foreign investment, and by getting serious about community wealth-building.
However, it is entirely mistaken to believe that, if the Sc£ does depreciate, a GB£ pension will be worth less when converted to Sc£.
In fact, the opposite would be the case because £1 would buy more than one Sc£. If the depreciation was 10% then £1 would buy Sc£1.10.
It is an appreciation in the value of the Sc£ which could affect the value of a pension paid in GB£s as £1 would buy less than one Sc£. If the appreciation was 10%, £1 would buy Sc£0.90.
What really matters is the purchasing power of Sc£ incomes, whether they be wage income or pensions income. Purchasing power depends on the prices of goods and services in Scotland.
A depreciating Sc£ could introduce price inflation for goods that are imported. This would be a significant problem if the prices of food and other essentials were affected by the value of the Sc£.
With our own currency the Scottish Government would have much greater scope to implement policies which help manage prices, especially the prices of food, energy and housing.
If food has to be imported, the government will have the capacity to allocate investments, without worrying about borrowing from bond markets, to boost domestic food production and reduce reliance on imports (although there will always be some foods that need to be imported because we can’t grow them in our climate).
What also needs to be taken into account is that the Scottish state pension will be paid in Sc£ and having our own currency means that it will be possible to pay a much more generous state pension than the UK does, again without worrying about borrowing from the bond market.
This will provide a high degree of compensation and added purchasing power, whatever happens to the exchange rate of the Sc£.
There is no doubt whatsoever that pensioners will be better off in an independent Scotland provided we have introduced our own currency from the start, whatever the exchange rate of the Sc£ might be.
Originally published by Google News Personal Finance
