In pension terms, Brexit is widely expected to affect sponsor covenant and potentially regulation, but will it change how schemes pay pensioners who live in the EU?
There are roughly 247,000 Britons aged 65 and over living in other EU countries excluding Ireland, the Office for National Statistics recently said. Meanwhile, the number of EU citizens leaving the UK is rising in what some have termed ‘Brexodus’. Some of these will be members of a UK occupational pension scheme.
I would say there are issues there, but it’s too early to tell what the critical issues are
Anthea Whitton, Eversheds Sutherland
With Brexit due in 2019, what, if anything, will change for pension schemes whose members eventually retire in the EU? Not much, said Melanie Cusack, a client director at professional trustee company PTL.
An extension of existing practice
“It will just be an extension of what we’ve had to apply to non-EU countries anyway. In terms of mobility of people, the EU has been easier for them, so we might see a broader range of countries that people go to, or a narrower range,” she added.
How members’ benefits will be paid might be more challenging than it is at the moment, she noted, mainly because of the financial institutions rather than the pension schemes themselves.
Cusack said schemes could also encounter unexpected issues with establishing beneficiaries and where they live, and whether a declaration of financial dependency is needed.
“That might all get a little bit harder, but I’m not really sure it’s going to be any less robust on the trustees’ side when they do their due diligence on the payments,” she said.
Cusack added that paying pensions to members living in the EU post Brexit was not top of trustees’ agenda.
“It’s not high among the priorities, but it’s something you can’t ignore because it does affect the day-to-day running of pension schemes,” she said.
Too early to know what the issues are
Anthea Whitton, a partner in law firm Eversheds Sutherland, said the Brexit question is being discussed by trustees more now.
“What we’re seeing is, it’s appearing on agendas [as] in, ‘We feel as though we ought to do something, but we don’t know what to do’,” she said.
What a hard Brexit would mean for pensions
There is a lot of chatter about Brexit, but very little detail about what it will look like in practice.
However, any impact on pension administration or other matters is difficult to predict, said Whitton: “I would say there are issues there, but it’s too early to tell what the critical issues are.”
The focus of trustees should now be on the potential impact – negative or positive – Brexit might have on the strength of the employer, she said.
“With the covenant piece, [that] is something people are already able to start looking at,” Whitton said, advising trustees to start asking the scheme sponsor relevant questions now.
Record-keeping has been pushed by TPR
James Walsh, policy lead for engagement, EU and regulation at the Pensions and Lifetime Savings Association, did not see any issues arising from Brexit in administrative terms, noting that pension schemes have been paying people living all over the world for years, and have been pushed by the Pensions Regulator to keep accurate member data.
“Schemes will still have to keep records on where the members are so they can pay the pensions,” he said.
For Walsh, the major concern with Brexit and pensions is regulatory. He pointed to the possibility of the UK becoming subject to a potential EU solvency regime for pensions, which he said was more likely with the UK no longer at the negotiating table.
