In the last 10 to 15 years, UK pension schemes have experienced a significant amount of regulatory change. Much of this change has originated in the EU, and has had the primary aim of protecting members. Now that these changes are embedded in UK legislation, it seems likely that the impact of Brexit on UK pension scheme law and regulation will be felt in the medium to longer term. A more immediate challenge will be the potential impact of Brexit on UK business and investments.
We set out some more detailed thoughts below.
Discrimination law largely derives from EU law and was consolidated in the UK in the form of the Equality Act 2010.
UK pension schemes are particularly affected by sex and age discrimination legislation and most have already changed their rules and practices to comply with it.
Theresa May has said that “[e]xisting workers’ [EU] legal rights will continue to be guaranteed in law … as long as I am prime minister”. As such it is unlikely there will be any immediate change to existing laws. In order to ensure that we remain an effective trading partner for the EU, it also seems likely that UK parliament will need to respond to any further developments in EU discrimination law.
TUPE legislation applies to employees on business and asset transfers between organisations and derives from the EU Acquired Rights Directive 1977.
The application of TUPE to pension benefits can be complex, and two CEUJ decisions have caused particular difficulties for UK pensions practitioners – Beckmann and Martin. It seems clear that the current protection will remain in place for the time being. However, Brexit could provide an opportunity for the UK courts or parliament to clarify some of the questions left open by those decisions.
Funding regime and member protection
The current scheme-specific funding regime is heavily influenced by the EU IORP Directive 2003.
The regime is set out in the Pensions Act 2004. The funding regime is generally considered to be an improvement on the old MFR regime and it now seems clear it will remain in place post-Brexit. In the short term, we think it is more likely that the government’s green paper on ‘Security and Sustainability in Defined Benefit Pension Schemes’ will be a driver for change in this area.
It is also worth remembering that the Pension Protection Fund, which provides vital protection for members in the event of an employer insolvency, has its roots in EU law. We cannot see any appetite for revisiting this lifeline.
Pension scheme funding strategy
Brexit could have wider economic implications, which may affect, for example, UK growth, the strength of sterling, interest rates, equities performance and gilt rates.
Any significant changes in these areas may have implications for pension scheme investments and, hence, scheme funding positions.
Pension scheme trustees also need to consider the effect that Brexit could have on their scheme employers’ business, and so on the strength of the employer covenant.
The General Data Protection Regulation (GDPR) is due to come into force in May 2018, and it will make significant changes to data protection law and to the penalties for non-compliance. UK businesses and pension schemes do need to implement the GDPR before May next year.
There is no transitional period and we anticipate that a number of essential changes will be needed in order to achieve compliance before next May. For more information about this, and about how we can help you to achieve compliance, through our ‘Pensions Secure’ fixed price options please contact us.
What should trustees and employers be doing now?
In terms of UK pensions law and regulation, it is very much ‘business as usual’ for employers and trustees.
Employers and trustees should, however, consider the potential impact of Brexit on the employer’s business and the scheme’s investment strategy. They should consider this statement, issued by the Pensions Regulator, add Brexit to their risk register and ensure that it is taken into account in investment and covenant advice.
Employers and trustees also need to take action now to ensure they are compliant with the GDPR.
Visit our Brexit feature page for more on the legal implications of Brexit for your business, read more here on how we can help you to prepare for Brexit, or find your local pensions expert here.