Dave Gordon, senior consultant in Towers Watson’s Edinburgh office, comments on the Smith Commission conclusions:
“With State Pensions and National Insurance continuing to operate on a UK-wide basis, the most important change affecting pensions will be the devolution of further income tax powers.
“Tax reliefs will be reserved to the UK, so Holyrood cannot change the structure of tax relief on pension contributions – only the UK Chancellor can do that. However, if the Scottish Parliament varies income tax rates or decides that higher rate tax should kick in at a different point on the income spectrum, this will affect the tax relief that Scottish taxpayers get on their pension contributions.
“Pension schemes would then need to identify who is a Scottish taxpayer, which is determined by where people live rather than where they work. Personal pension schemes and the National Employment Savings Trust would have to claim different top-ups from HMRC for savers who are Scottish taxpayers. For defined benefit schemes, the challenge would be to deduct different amounts of tax from the pensions they pay out.”