On the go: One in seven UK pension schemes faces a Brexit conundrum with their valuation year-end dates falling due on March 31, the Sunday after the UK is due to leave the EU on March 29, according to Aon.
March 29 is final trading day before many valuation year-end dates and the valuations could be driven by turbulent conditions. If no action is taken now, this potentially atypical point could lead to more difficult valuation negotiations, the professional services company has warned.
Aon is advising trustees and sponsors to discuss their options given the clash with the proposed date for the UK leaving the EU.
Lynda Whitney, partner at Aon, said: “There are plenty of levers that can be used within the legislative framework for valuations – but ultimately it’s a matter of sponsors and trustees having a grown-up conversation ahead of the end of March.”
She added: “If markets do react significantly on 29 March it will inevitably be to the benefit of one side or the other – to the company sponsor or to the trustees. Therefore, both sides should hold an ‘in principle’ conversation as soon as possible, which will allow them to agree to use levers they may have ruled out in the past.”
For example, they can think about having a one-off adjustment in the level of prudence, consider a one-off change in outperformance in the recovery plan period, or formally take into account post-valuation experience – though Ms Whitney noted that this has “other consequences”.
Ms Whitney continued: “The aim here would be to avoid potential friction after 31 March – while nobody knows which side any market movements could favour.”
While the industry hopes that whatever might happen on March 29 will cause the minimum of disruption to both the economy and to pension funds, “it’s best for schemes to build in some tolerance ahead of the event if they have an imminent valuation date”, she added.
