Rosalind Connor in Professional Pensions re Does Brexit matter for 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.
Does Brexit matter for pensions?
On 23rd June 2016, for the first time over 40 years, we will get to vote on whether or not Britain should stay in the European Union. Rather like the Scottish independence referendum in 2014, much has already been said, on both sides, about the horrors attached to voting the other way, often high in rhetoric and low in detail.
What does this mean for UK pensions and, in particular, the plethora of legislation, regulation and law that binds the way that UK pension schemes operate. Should we, as pension professionals, care about Brexit and what it might do to that regulatory environment?
The answer might well be, not really. Despite various inroads from Europe, and cases like Barber, Beckmann and the recent VAT cases, the vast majority of the law that rules the lives of trustees, employers and advisers is not European in root. Automatic enrolment is a UK initiative. The inspiration for the PPF and the Pensions Regulator with its moral hazard powers lies, if anywhere, with the USA and its 1970s ERISA legislation. The fundamental pensions law is the ancient concepts of trust law, developed during the Crusades, long before half the original EEC countries existed.
Of course some pensions law comes from Europe. Much of the discrimination law is in the Equal Treatment Directive, for instance. However, from there it is enshrined in UK law. Leaving Europe doesn’t suddenly stop this law applying – it would have to be actively repealed by the UK Parliament after Brexit. This is where it does get interesting – what would a victorious “Leave” campaign choose to repeal?
I would make a strong prediction that no one would repeal most of the discrimination law. Even in the 1970s when Britain joined Europe we had woken up to the idea that sacking women for getting married, or anyone for skin colour should not be allowed, and more recently the country has reached similar conclusions about judging an employee on the grounds of age, or the sex of the person they choose to marry. I believe (and devoutly hope) that the majority of the voters think these protections fair and right.
Similarly, although the 2004 scheme funding regime followed the IORPs (Pensions) Directive, it is a UK interpretation which works pretty well and it is hard to see what might replace it. Finally we have a system that trustees, employers, advisers and the Regulator generally understand – would Parliament be brave enough to redraft it?
There could be pushing around the edge, of course. The government would have a freer hand to make a definite decision (and some legislation, rather than proffering opinions) about the pain surrounding the equalisation of GMPs. The constant threat of “solvency II” insurance-type funding of pensions is likely to recede as well, one would think.
So, what is left? VAT is a European tax, but presumably that will be replaced with a similar UK sales tax. Brexit may see a regrouping and advance by HMRC on the treatment of VAT on pensions, but some may say that pensions are suffering enough on the tax front. The esoteric and unsolved issue of pension rights of employees on asset sales and when they are excluded (following the extremely problematic European cases on the subject) is likely to be clarified and, in fact, the whole underlying legislation, never particularly popular with UK governments, may be rewritten.
But, fundamentally, the regulation of occupational pensions is unlikely to change much whichever way the country votes in June. However the world may change as a result, pensions will continue, largely, to be regulated as much as ever.
Read the full article in Professional Pensions here.
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