Any Other Business: The Bank of England last week came under scrutiny after details were leaked of a secret study on the financial impact of a decision to leave the European Union.
But what effect could the referendum – and subsequent decision – have on UK pension schemes?
While the Conservative election victory a few weeks ago prompted a rally in the FTSE, many expressed concerns about one key election promise: an in-out referendum on Europe before the end of 2017.
Britain’s membership of the EU has long been a contentious issue, and in the months leading up to the referendum we will be faced with powerful arguments for and against membership.
Regulation
From a pension scheme perspective the main argument for leaving is the prospect of reduced regulation on schemes.
The markets will have a degree of uncertainty. The equity market will potentially struggle
Roger Mattingly, Pan Trustees
“There is a hassle factor, which, to date… it’s been pretty tame,” said Roger Mattingly, director at professional trustee company Pan Trustees.
“But the threat of bureaucratic intervention would have material financial implications, which would be pretty onerous.”
One such intervention is the ‘holistic balance sheet’, proposed by the European Insurance and Occupational Pensions Authority, which has come under fire from the UK pensions industry that has said it could add hundreds of billions to defined benefit liabilities.
Mattingly added that not needing to comply with legislation “would be a benefit in the main, because a lot of that is EU-wide intervention that isn’t tailored to the UK”.
He added: “The concept of being able to cherry pick [regulation] is quite an opportunity in terms of reducing red tape and making activity less constrained by regulation.”
However, James Walsh, EU and international policy lead at the National Association of Pension Funds, said the effect of the referendum depends on what sort of arrangement Britain ends up having with the EU.
He said many of the larger players in the asset management arena would still have to meet EU requirements – such as the Markets in Financial Instruments Directive and European market infrastructure regulation – if they were to continue operating in EU countries.
“The major City institutions would have to comply with them,” he said.
Market uncertainty
Mattingly said that while changes to regulation typically come slowly – making it easier to prepare and adapt to them – the most immediate effect of the referendum would be on the markets.
“To say these regulations are a slow burner is the understatement of the year,” he said, adding: “The markets will have a degree of uncertainty; the equity market will potentially struggle. It will drive [bond] yields down if the uncertainty drives money out of equities.”
Claire Carey, partner at law firm Sackers, said the best thing schemes could do was wait.
“It would be more a case of looking ahead to see what’s potentially coming down the tracks… Because legislation isn’t like a stock market, things don’t change quickly. It takes time," she said.
"I think it’s a case of just waiting and seeing what [could] happen.”
