The UK electorate voted to leave the European Union in a so-called Brexit referendum. The initial impact for occupational pension schemes has come from the resulting market volatility, and whilst there is no immediate impact on pensions law, there is potential for this to change in the future. We provide employers and trustees with an overview of key potential implications.

Funding issues

For defined benefit (DB) schemes, a key issue is market volatility following the referendum result. Depending on the circumstances of the sponsoring employer and its involvement with other EU countries, trustees may need to look at the impact on employer covenant. Trustees should also consider taking investment advice as to whether their investment strategy needs to be altered in light of the impact on the market. Depending on the outcome of these considerations, trustees may need to consider whether to negotiate increased contingent security for their scheme and employers will need to consider how to respond to any such requests.

It is also worth employers and trustees noting that the Pensions Regulator's annual funding statement published in May 2016 stated that the Regulator would consider whether a further statement was necessary following the result of the EU referendum.

For defined contribution (DC) schemes, members' fund values may have been negatively impacted by the current market conditions and therefore employers and trustees may find that they receive requests from members approaching retirement age to work longer and defer drawing their benefits. Trustees of DC schemes should also consider consulting their investment advisers about the investment funds available to members and whether these remain appropriate.

Trustees of all schemes may find that they receive queries from members about the impact of the referendum result on their pensions and therefore trustees may want to consider issuing a communication to members to inform them of any protective steps they are taking.

Existing legislation

A significant amount of UK pensions legislation originates from the EU, such as the scheme specific funding requirements for DB schemes and non-discrimination. However, because these provisions have been implemented into national law and an exit from the EU will not affect national legislation, these provisions will remain intact despite the outcome of the referendum. This means that there is no immediate impact on existing pensions legislation.

Depending on what exit terms are agreed it may be possible for the UK to change some of this legislation going forward. Only time will tell whether any changes are made to existing legislation but it is worth bearing in mind that:

  • Review and amendment or repeal of legislation would be time-consuming and pensions may not be high on the list of post-Brexit priorities
  • Large-scale repeal or reform that goes against equal treatment or reduces the regulation or security of pension schemes may be unlikely, and
  • Many pension schemes have incorporated current legislative requirements into their scheme rules and scheme amendment powers and legislation preventing detrimental changes to accrued rights may prevent changes to scheme rules.

It is also worth noting that there is existing UK legislation concerning the governance of cross-border pension schemes (which are essentially UK schemes that accept contributions from employers in respect of certain members employed in other EEA states) including strict funding requirements. It may be that this is an area of law which is subject to future change and to the extent that this involved relaxing the strict funding requirements, this may be welcomed by sponsoring employers.

Future requirements

There are a number of upcoming issues which are now uncertain although the ultimate outcome will depend on the timing and terms of the UK's exit from the EU as well as subsequent decisions of the UK Government.

  • An updated IORP Directive (IORP II) which was first published in 2014 is still under consideration at European level. The IORP II Directive includes provisions in relation to governance and disclosure and it is currently anticipated that it may apply by the end of 2018. However, it may now be that the requirements of this Directive do not have to be implemented in UK law.
  • The requirement for equalisation of Guaranteed Minimum Pensions (GMPs) to remove the effect of historically unequal State Pension ages comes from European case law but there has been uncertainty as to how this should be implemented. A consultation was published on this issue by the DWP in 2012, but it was subsequently reported that the DWP had been examining alternative approaches and was intending to re-consult on revised regulations in this Parliament. It will be interesting to see how the referendum result impacts on the Government's approach to this issue and whether it will decide that schemes do not need to take action to equalise GMPs.
  • An issue which many defined benefit schemes have actively been considering is the change in HMRC's policy on employers reclaiming VAT on administration and investment management costs. A transitional period currently applies until 31 December 2016 during which employers and schemes can continue to follow HMRC's previous approach. The case law which led to changes in this area came from the European courts. Further guidance is currently awaited from HMRC on this issue and it will be interesting to see whether the outcome of the referendum has an impact on this guidance.

Other issues

More generally, changes may be seen in the way that the UK courts, Pensions Ombudsman and Pensions Regulator interpret UK legislation, for example in relation to issues such as equal treatment and TUPE, if they are no longer bound to consider the interpretation of the European courts. However, any change in this area is likely to be gradual.

Whilst the draft IORP II Directive reported above does not currently make provision to harmonise funding requirements, should the issue of harmonising solvency rules (which could increase UK DB scheme deficits) or the alternative recommendation by the European Insurance and Occupational Pensions Authority (EIOPA) for a standardised risk assessment be picked up again in the future, these may well not apply to the UK.


At this stage, there remains much uncertainty as to the future impact on pensions legislation as a result of Brexit. It should also be borne in mind that any change in Government could result in changes in relation to pensions policy. However, the key message is that there is no immediate impact on pensions legislation and therefore employers and trustees should continue to comply with existing pensions law as well as considering the impact of the current market conditions on the funding position of their scheme.