IFoA comments on HM Government's draft legislation on further devolution of powers to the Scottish Parliament

• Increased devolution could increase tax complexity
• Need to avoid risk of unintended consequences

The Institute and Faculty of Actuaries (IFoA) has played an active role in informing the Scottish independence debate. Martin Potter, leader of the IFoA’s Scottish Board, today (22 January) comments on the publication of the Government’s draft legislation for further devolution of powers to the Scottish Parliament.

“The work undertaken by the UK Government in the draft Scotland Bill 2015 to devolve more powers to the Scottish Parliament following the Smith Commission’s recommendations is welcomed.  However, it should be noted that having differing tax rates in Scotland versus the remainder of the UK will make a very complex system, especially in terms of tax relief on pensions savings. 

“There is potential for differential tax relief to be a large administrative burden that will need to be borne by employers who have staff working cross-border.  It could also be complicated for individuals, particularly contractors working throughout the UK on a regular basis.

“Additionally, through the new legislation, tax rules could end up being far more complex than currently envisaged. That complexity costs time and money. The Government also needs to take into consideration lead-in times for changing payroll systems and the extra costs of two divergent systems being supported by software providers.

 “With the new pensions freedoms outlined in last year’s Budget, when considering further devolution it is important to avoid unintended consequences such as individuals ‘gaming the system’ by declaring residency in the country with the most beneficial tax rates.  This could see people with large pension funds transfer between Scotland and the rest of the UK to whichever has the lower marginal rate.

 “As an independent professional body with a Royal Charter the IFoA is engaging with both the UK and Scottish Governments on these important issues.  We look forward to continuing to work with all key stakeholders as further devolution for the Scottish Parliament develops.”

~ENDS~

For further comment or to answer any questions that you may have please contact Annette Heninger at the IFoA on 07525 592 198 or by emailing annette.heninger@actuaries.org.uk

Editorial notes:

About the Institute and Faculty of Actuaries

The Institute and Faculty of Actuaries (IFoA) is a royal chartered, not-for-profit, professional body.

Research undertaken by the IFoA is not commercial.  As a learned society, research helps us to fulfil two of our royal charter requirements; to further actuarial science and serve the public interest. 

Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.

Members of the IFoA have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s.