Home truths : pension provision in a United Ireland

A topic I see coming up quite often relates to the question of pension provision in a united Ireland. For such an important topic, there seems to be a great deal of misinformation. The ongoing “civic conversation” has not really addressed it properly and, unfortunately, there have even been academic papers that have sought to wave the problem away. 

Most people assume that since they’ve been paying national insurance contributions to the UK throughout their life, the UK government would be expected to cover those pensions following reunification. After all, the UK government pays pensions to British pensioners living overseas. Wouldn’t the same principle apply ?

The answer is : no, the same principle does not apply. There are two major reasons for this. 

Contrary to what many people believe,  when you pay your national insurance contributions the money does not go into a big pot to be paid out when you retire. Instead, the money is spent immediately, in accordance with government policy. Northern Ireland gets a slice of this spending. As well as being disbursed to existing pensioners, it is spent on other things : infrastructure, public buildings, doctors, teachers, police officers and all the rest. In other words, this money has already been invested within Northern Ireland. 

If or when reunification occurs, the new Irish state will receive territory that has benefitted from the investment of UK public spending that has included these contributions. The level of investment would have been lower if a proportion of this funding had been ring fenced for future pension funding. The UK government will therefore argue that to continue paying out pensions to pensioners in Northern Ireland would be, in effect, spending the same tax contributions twice. 

The second aspect to consider is the source of pension funding. As I just mentioned, pensions paid today are funded from taxes received today (more or less). However, following reunification, the section of the tax base that exists within Northern Ireland will be transferred to the new Irish state, which will immediately begin to collect revenue from it. The UK will argue that it is not fair that it should have to pay pensions or other welfare benefits within a region where it is no longer collecting revenue. 

This is also why the analogy with British pensioners overseas does not apply. Normally, it makes little difference to the UK exchequer whether a pensioner is resident within the UK or not. But in the scenario where a section of the tax base is passing to another country, there are different considerations.

There are some who argue that the British government should be expected to provide a cash injection as part of any reunification deal, or that perhaps the USA and the EU will provide money. Perhaps they will. It is, after all, in everyone’s interests that any future unitary state works and is stable, and everything will be on the table for negotiation.

However, fundamentally, the British government is not likely to concede on the question of where responsibility for funding social welfare within the new state will lie. 

How do I know this ? It’s very simple : the precedent has already been set. During the run up to the Scottish independence referendum, the UK and Scottish governments arrived at a number of agreements on how independence would be implemented if the referendum were to succeed. On pensions, it was decided

For those in Scotland in receipt of the UK State Pension at the time of independence, the responsibility for paying that pension would transfer to the Scottish Government.

For those people of working age, who are living and working in Scotland at the time of independence, the UK pension entitlement they have accrued prior to independence would become their Scottish State Pension entitlement.

I consider it unlikely that the UK government will propose a more generous model for Irish reunification than for Scottish independence, particularly if Irish reunification comes first.

There are other political complications that would arise if the UK government were to continue paying pensions. For example, what would happen if the UK government decided to change its pension policies ? In recent years, the UK government has made changes several times – raising the retirement age from 65 to 68; raising the women’s pension age from 60 to 68; and, most recently, meddling with the pension triple lock. It may well make other decisions on how pension income is taxed.

Following reunification, pensioners would have no vote and no voice in the UK parliament when it is considering these matters.

At the same time, what would happen if the Irish government increased its pension benefit ? Right now, Irish pensions are paid from age 66, earlier than age 68 in the UK. The pension is worth €253.30 for those aged below 80. At current exchange rates this works out at around £211, compared to the standard UK pension of £179.60. This would pose a political problem, as Irish taxpayers paying the same taxes would receive different levels of benefits. Irish citizens in six of the counties would receive lower pensions than their neighbours to the south. Partition would, in effect, live on for many decades after the fact.

In summary, the idea that the UK government will continue to provide pensions to residents within the former Northern Ireland following reunification is not only politically unworkable within Ireland, but is also unlikely to be agreed by the British government during the negotiations that will form part of the reunification process, either before or after a referendum.

Instead, the state pension liability will have to be met by the Irish government, as part of the collection of liabilities it will assume as part of the reunification process.

The cause of Irish unity would surely be better served by abandoning fantasy economics and imaginary grants from foreign governments and focussing on a more honest and direct debate about what the real costs and benefits are likely to be.

The author is a member of the Alliance Party, but is writing an entirely personal capacity and does not speak for or represent any other person or organisation

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