With the referendum date now set for 23 June 2016, this document looks at some of the key legal issues for occupational pension schemes should the UK vote to leave the EU.
The precise outcome would, of course, depend on the Brexit model adopted and any transitional provisions agreed, as this would determine the extent to which the UK would still be required to comply with EU law. It is likely to take at least a year or two, some say much longer, for exit terms to be negotiated. For more information on the background and potential Brexit models, please see our Making sense of Brexit brochure.
In any event, substantial legal changes are unlikely to come about immediately upon exit. EU based laws that already form part of UK legislation would not simply disappear. Even in the absence of EU membership, it is difficult to imagine a wholesale repeal of pension laws on fundamental matters like equality. In addition, some elements of UK pensions legislation comply with European law but have been introduced as a result of drivers from within the UK, the Pension Protection Fund (PPF) being one example.
Legal change in some areas could, however, happen gradually over time, as the UK parliament and courts would, unless otherwise agreed, no longer be obliged to enact or interpret law by reference to current EU treaties and directives. Additionally, schemes could see a reduction in future EU based rules and regulations, perhaps including some of those currently in the pipeline.
This document does not consider the impact of potential post-Brexit financial volatility – views differ on this. However, DB schemes in particular should bear in mind that, depending on the business, focus and sector of the scheme employer, there could be an impact on covenant. Investments (particularly those based elsewhere within the EU), contingent assets and funding levels could be affected. UK schemes might also be excluded from opportunities provided by Capital Markets Union, a plan intended to promote cross border capital flows and generate a new range of infrastructure investments.
The table on the next page summarises some of the key legal issues and potential implications of Brexit for occupational pension schemes. Note that the implications would in each case depend on the precise exit terms agreed.
Click here to view table