UK approach to IORP II
While Irish pension trustees and scheme sponsors still await legislation which will transpose the EU Directive on Institutions for Occupational Retirement Provision ("IORP II") into Irish law, the UK has proceeded to implement many of the legislative changes required by IORP II, despite the current uncertainty surrounding Brexit.
In October, the UK published two Statutory Instruments that will transpose into UK law new pension scheme governance and cross-border activity requirements. Not all provisions of IORP II are transposed by these Regulations. UK pension schemes were already subject to many of the requirements of IORP II under existing UK pensions legislation.
The UK has chosen not to apply many of the IORP II related governance requirements to schemes with fewer than 100 members. Ireland also has the option of dis-applying those requirements to such schemes but we do not yet know if that option will be exercised. Given some of the similarities between the Irish and UK pension regimes, it was interesting to see that the UK did not adopt a 'one size fits all' approach.
Brexit - Impact on UK/Ireland cross-border pension schemes
The Withdrawal Agreement between the UK and the EU aims to ensure that existing EU law will apply until the end of the proposed transition period, i.e. up to 31 December 2020. This means that it should be business as usual for UK/Ireland cross-border pension arrangements during that time.
However, if the Withdrawal Agreement is not approved by the UK and it crashes out of the EU with no deal in place there may be repercussions for Irish and UK cross-border pension schemes. Most UK cross-border schemes (where the UK is the home country) host members who are based in Ireland and similarly most Irish cross-border schemes host members based in the UK.
The UK's Department of Work and Pensions has published draft Regulations aimed at enabling UK pensions law to operate if the UK leaves the EU without a withdrawal agreement in place.
The draft Regulations aim to allow UK cross-border schemes to continue to operate across borders post-Brexit from a UK perspective. In other words, UK schemes can accept contributions from other countries and must treat non-UK members the same as UK members relating to membership and contribution entitlements.
The EU has not published reciprocal legislation in the event of a no deal Brexit. In fact, in April 2018 the European Commission stated that after 29 March 2019, and depending on the terms of any withdrawal agreement, UK cross-border schemes will no longer be authorized under IORP II to operate within the EU as it will be a third country. It suggested that UK schemes will need to apply to host member states (such as Ireland) to ascertain how they can continue to operate within the host member state in those circumstances.
Under Irish law, employers and employees can receive tax relief on contributions made to approved overseas pension schemes. These are schemes that are operated or managed by an IORP and established in a member state which has implemented the IORP Directive. If the UK leaves the EU without an agreement UK based cross-border IORPs may no longer be regarded as overseas pension schemes and tax relief may not be available on contributions made to them.
Prior to the implementation of the initial IORP Directive in 2005, pension schemes with members in the UK and Ireland were exempt from certain aspects of both UK and Irish pensions law due to a reciprocal agreement between Ireland and UK. There have been suggestions in the UK that the Irish Government may come to a similar agreement with the UK post-Brexit to deal with Irish/UK cross-border schemes. However, to date, we have seen no official announcements relating to putting such an arrangement in place.