Key considerations – immediate and short-term:
- Sending out communications to members from trustees and / or sponsoring employers of pension schemes to reassure members about steps being taken to mitigate risks to their pensions schemes, particularly investment volatility risks;
- Whilst pensions are long-term investments and knee-jerk reactions should be avoided, trustees of pensions schemes should however check their investment policies are still suitable post Brexit and whether alternative investments such as emerging markets and hedging currency volatility against for example the US Dollar / the Euro could be an advantage in the short-term;
- Employers should reassure trustees that they have contingency business plans in place for post Brexit particularly with regards to their financial strength (covenant) to support their pensions schemes, review closely any weakening of the employer covenant and in particular review closely any guarantees / security in place in favour of their pension schemes which are linked to an overseas EU employer and does this need to be amended – dialogue with the trustees at an early stage may be required.
Key Legal issues:
It is unlikely Brexit will have a major impact on UK pensions legislation as many of the EU requirements entrenched in UK are beneficial such as equalisation of benefits. However, the result does allow future UK pensions law to potentially move away from some generally “undesirable” EU law currently on the horizon. UK case law has also been influenced by the EU and the UK may impose its own local interpretations on say TUPE and equal treatment. Some of the areas where we think legislation and policy may change are detailed briefly below:
- Institutions for Occupational Retirement Provisions (IORP) II Directive which is currently in draft, if brought into force imposes new funding, governance and communication requirements on pensions schemes, the details of which are yet unknown. It is now unlikely to be adopted which hopefully cuts down on further costs on pension scheme arrangements and ultimately on a sponsoring employer;
- Cross-border schemes – these may become more widespread as EU restrictions imposing onerous funding requirements on defined benefit schemes potentially fall away;
- Guaranteed Minimum Pensions (equalisation of state pensions) has been put back for some time, and this also has the potential to fall away if UK courts are no longer bound by EU court authorities;
- Sex based actuarial factors – the CJEU struck out the exemption for sex based actuarial factors in pricing annuities, and pension providers may revert back to sex based factors which brings down the cost of providing annuities;
- The European Insurance and Occupational Pensions Authority (EIOPA) is proposing a levy on pension schemes and EIOPA may not have the power to do so on UK pension schemes;
- VAT treatment of investment management charges and advisor costs – HMRC may reflect on its recent guidance with an attempt to simplify the process for employers to reclaim VAT on investment management charges, and this may extend to VAT charged on advisor fees;
- TUPE transfers – the ruling in Beckmann (CJEU) provided (put simply) that TUPE transfers are to take into account enhanced early retirement and redundancy rights and the authority may not need to be followed and could make TUPE transfers and pensions much simpler; and
- Scottish Schemes – watch this space if Scotland becomes independent and remains in the EU!