As the dust settles on the UK referendum, some of the potential implications for Irish pension schemes are coming into focus.

Investment and Funding Issues

There has been extensive comment on the potential impact of the UK referendum result on pension schemes’ investment portfolios and investment assumptions. From a legal and trust law perspective, the main point is that defined benefit scheme trustees should be considering the potential impact on their current investment and funding assumptions, and on their assumptions regarding the long term financial position of the scheme.

Passporting Issues

Trustees should also be considering the impact on contracts they currently have in place with UK based fund managers or insurance companies and investment advisers who are operating in Ireland on a freedom of services or branch basis. These institutions will no longer be able to passport their services into Ireland if the UK does not retain full EU passporting rights as part of any exit negotiations.

If these institutions lose their passporting rights, and do not transfer their existing EU based business to a fully authorised subsidiary or branch operation within the EU, they will have to terminate their existing arrangements with EU clients.

There is no immediate action to take, but trustees may wish to ask UK based investment and insurance counterparties about their longer term commitment to the EU market, and whether they are prepared to take the necessary steps to ensure continuing access to EU customers notwithstanding the outcome of any UK exit negotiations.

This is a concern that applies at least as materially to defined contribution schemes as to defined benefit schemes.

Impact on EU policy

The UK has always been a strong advocate for a balanced approach to pension scheme regulation at EU level.

Most recently, the UK was very active in resisting some of the more overbearing attempts to impose excessive solvency standards and administrative and governance requirements on pension schemes under the current IORPs II Directive negotiations. Many of these proposals came from representatives of countries which have very different pension systems to the Irish and UK systems.

The potential loss of the UK as an advocate at EU policy level is a serious longer term issue for Irish pension schemes. Trustees of Irish schemes may need to take more of an interest in EU policy issues and ensure that their representative and advocacy bodies are forming new alliances with other EU countries with large funded pension systems, in order to compensate for the potential absence of the United Kingdom in the future.

Impact on cross border schemes

The 30 or so Irish pension schemes which currently have UK employers contributing to them would have required authorisation under the cross-border scheme provisions of the Pensions Act in order to accept those contributions. This is due to those contributions being received from a sponsor “located in another Member State”.

The term “Member State” in this context covers those States which are members of the EEA. If the UK is no longer a member of the EEA, then the Scheme will fall outside this process and normal Revenue rules will apply. The UK section will become an unapproved section, with potentially negative tax consequences.

In relation to UK based cross border schemes which are receiving contributions from Irish employers, these will, if the UK leaves the EEA, also fall outside the EU cross-border regime. The UK may change its domestic taxation regime to facilitate continuing participation in these schemes by Irish employers, or it may not.

Trustees of schemes in either category obviously need to consider the potential impact of the UK referendum as a priority.