Implications for UK pensions law: much of UK pensions law relevant to occupational pension schemes which is derived from EU law is contained in primary legislation, including, for example, the scheme specific funding requirements for DB schemes. We think that it is unlikely that there will be significant change to this existing body of law as a result of the vote to leave. It is possible that we may see some future divergence in some areas depending on how law develops in the EU and the nature of the UK’s relationship with remaining EU27 which emerges over the following months and years.
Impact on key funding risks for occupational defined benefit (“DB”)schemes: Trustees and sponsoring employers of occupational DB pension schemes will need to factor in the impact which the leave vote will have on key funding risks in the scheme: covenant, investment risk and how the funding level and strategy for the scheme is set. Again, much is likely to depend on the nature of the revised UK/EU-27 relationship and the particular industry in which the sponsoring employer operates.
For sponsoring employers of occupational DB schemes, maintaining ongoing dialogue and communications with the scheme’s trustees will be key. In the event of the vote to leave having a significant adverse impact on the business, for example a reduction in credit rating, employers should consider whether any legal requirements to communicate information to trustees are triggered. For example, this could be the case under a parent company guarantee or any information sharing agreement which is in place between the employer and trustees. There is also a legal requirement on employers to disclose to trustees “any event relating to the employer which there is reasonable cause to believe will be of material significance in the exercise by the trustees…..of any of their functions.”
For trustees of occupational DB schemes, although Brexit represents uncharted territory, its potential impact needs to be carefully considered like any other significant development that may affect the scheme. In the weeks and months ahead, Trustees will, no doubt, continue to ensure an appropriate dialogue with the employers and make use of their existing monitoring and governance procedures.