What a hard Brexit would mean for pensions

We know that “Brexit means Brexit”. We also know Article 50 was triggered on March 29 2017. After that the negotiations begin, and only time will tell what relationship the UK will have with the EU post Brexit. But if the UK was to go for a hard Brexit, what would that mean for UK pension schemes?

It is clear the government is not looking to ride roughshod over EU law requirements any time soon

How does EU law currently affect pension schemes?

Pension scheme design is the responsibility of each member state. The EU regulatory framework covers:

• the establishment of a single market for funded occupational schemes and the setting of minimum standards to protect members, including scheme funding (the Institutions for Occupational Retirement Provision directive);

• minimum guarantees for accrued occupational scheme benefits on the insolvency of the sponsoring employer, which led to the introduction of the Pension Protection Fund (the insolvency directive);

• anti-discrimination and employment protection laws (the equal treatment directive and the acquired rights directive)

In relation to the provision of benefits, the majority of UK pension schemes have decided not to provide benefits for workers in other member states as a result of onerous funding requirements. 

That said, UK schemes have more than £1.5tn in assets that need to be invested. They therefore want to have easy access to investment markets across the world, including the EU. This means they must comply with the EU investment market requirements.

Hard Brexit: Short-term effects

In the short term there are unlikely to be any consequences in terms of the regulatory framework for pension schemes. The government announced the great repeal bill, but contrary to its name, the bill will incorporate, for the short term at least, all EU law into UK law. This means that, from a legal perspective, there will be no immediate change post Brexit. 

The government intends to review the incorporated EU law and decide which parts to repeal, with any reversal likely to be prospective only.

One promise the government has made is that it intends to protect employment rights post Brexit. While it has not said what this means in practice, it seems unlikely it would seek a wholesale rewrite of the anti-discrimination laws such as, for example, age and sex discrimination. 

It remains to be seen whether or not the government looks to row back from the challenges posed in practice by the enhanced benefits that transfer under transfer of undertakings (protection of employment) regulations as a result of the Beckmann decision.

At the same time, it would seem very unlikely the government would look to repeal the scheme funding regime or the Pension Protection Fund.

Longer-term consequences

Crystal ball gazing is notoriously difficult. Much will depend on the relative ‘hardness’ of the Brexit and the government’s attitude to repealing EU requirements.

If nothing else, pension schemes that wish to access or continue to access EU investment markets will need to comply with the relevant EU law requirements.

From a practical perspective, Brexit’s effect on the UK economy will have an impact on scheme investments.

At the same time it is clear the government is not looking to ride roughshod over EU law requirements any time soon.

As a final thought, Brexit may present opportunities. To date, very few occupational pension schemes operate across EU borders, but in a post-Brexit world, the repeal of EU cross-border regulations could result in UK schemes being able to provide pension benefits for internationally mobile employees.

Ruth Bamforth is a senior associate at law firm Walker Morris