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.

With the referendum on Britain’s membership of the EU just two days away, Professional Pensions addresses what pension scheme managers and trustees should expect in the event of Brexit.

Although the EU has affected UK pension laws, a British government outside of Europe is unlikely to roll them back. Rosalind Connor argues that at most there will be tweaks.

“The laws most affected by the EU relate to discrimination law. Although they may be adjusted, fundamentally, those aren’t likely to be repealed. In a normal 21st century democracy, you do not get rid of laws that protect people from being abused.”

Rosalind summarises: “You have freedom but it is the freedom you get in a democracy. There is freedom to change legislation but it is unlikely to be used.”
Nevertheless, a vote to leave could end an ongoing debate on the equalisation of guaranteed minimum pensions (GMPs).

Connor says: “There is a big argument about whether you have to equalise GMPs and how. This may just fall away if somebody passes a law saying you don’t have to. You could see someone saying ‘Oh good. We can now pass a law that our hands were a bit tied about before’.

“This will make life much simpler because no-one is sure how you do it consistently with EU legislation.”

However, preparations should have been made for how Brexit might affect investment portfolios Connor urges trustees to ensure they are not gambling with the scheme’s investments.

“There will be winners and losers on the investment front, and trustees of pension schemes will have to have put in place some hedging so they’re not exposed.
“What they mustn’t be doing is taking a punt. They mustn’t be saying ‘I think we’re going to leave so let’s invest in a way that means we will get a bounce if we leave’. Their obligation is to be prudent here, but there’s nothing to worry about if they’re managing their risk.”

Connor says these businesses could quickly find themselves with high-risk following the referendum: “Trustees ought to have been talking to their employer to understand the effect of Brexit on them. They may need to reduce the risk of their portfolio because a low-risk employer may become a high-risk employer.”

Read the full article in Professional Pensions here.