19 May Rosalind Connor in Lexis PSL Pensions on Brexit’s impact on pensions
This article was written and published before the outcome of the Referendum on EU membership was known but the guidance and commentary within it remains applicable now that the UK has voted to leave the EU.
Pensions analysis: Rosalind Connor, partner at ARC Pensions Law, explains that while the vast majority of UK pensions law is unlikely to immediately change as a result of a potential Brexit, there are surrounding legal issues, such as the interpretation of employment discrimination law, that would impact trustees and employers.What are the immediate issues for pension schemes in the run up to the referendum, and what are the key legal issues for occupational pension schemes should the UK vote to leave the EU?
- member nominated trustee processes under section 241 of the Pensions Act 2004 (PeA 2004)
- restrictions on amendments to benefits under section 67 of the Pensions Act 1995 (PA 1995)
- automatic enrolment under Part 1 of the Pensions Act 2008, and
- tax pension freedoms under the Taxation of Pensions Act 2014
Indeed, many of those pieces of legislation have received attention from Europe as possible policies to copy. Furthermore, the system of the Pensions Regulator (TPR) and its powers, as well as the Pension Protection Fund (PPF) under PeA 2004, Pts 1 and 2, take their inspiration from the US’s Employee Retirement Income Security Act of 1974 (ERISA) legislation from the 1970s, rather than any European influence.
Regardless, contrary to the rhetoric on both sides of the referendum debate, the effect of Brexit would not immediately impact pensions legislation. The EU legislation that affects pensions has been enacted by directive—the legislation would, therefore, survive any exit from the EU. All that would change would be the ability of Parliament to repeal the legislation. This legislation includes:
- the Equality Act 2010 and other employment discrimination legislation, which even the most hardline Brexitcampaigner is unlikely to criticise in principle, and
- the structure of the scheme funding legislation under PeA 2004, Pt 3
The latter, incidentally, is generally considered a great improvement on its predecessor, the minimum funding requirement under PA 1995, and would be difficult to replace. As such, it is unlikely that the majority of pensions regulation would change swiftly, or at all, following Brexit.
However, there are certainly areas where changes are likely in the medium-term. Pension schemes should be aware that the interpretation of employment discrimination law is likely to develop, which will affect pension scheme structures and benefits based on age, sex, sexual orientation, and disability. At the same time, the coming EU regulation on data protection would not, post-Brexit, affect UK schemes. This might potentially give scope to dealing with certain challenges that data protection legislation holds for pensions, such as a member’s right to be ‘forgotten’.
In addition, schemes with a ‘cross border’ element with members from other EU Member States would find themselves under much less regulation, and those that pulled out of being cross border as a result of the 2003 Pensions Directive 2003/41/EC (particularly the so-called Anglo-Irish Schemes) might find it easier to return to the old structure.
What are the potential implications of Brexit on pension schemes and their sponsors in the short-term and the long-term, and what appropriate contingency plans should be made?
Are there any policies in the middle of being implemented that would be abandoned?
Should employers also consider the potential impact on their business, and what is the likely impact on the employer covenant?
What will be the impact on the state pension of UK expatriates currently living in other EU countries?
What action should trustees take in the run up to the referendum to protect their schemes and their members?
Read the full article in Lexis Nexis PSL Pensions here.