Here we consider the pensions implications of Brexit, including a review of the Pensions Regulator’s (TPR’s) statement on this, and highlight TPR’s new DC Code and supporting documents which have come into force.
Brexit: the implications for pension schemes
Trustees and sponsoring companies are considering the implications of Brexit for their pension schemes. The Pensions Regulator (TPR) has issued a statement setting out its main messages and key areas for trustees of DB and DC pension schemes to action in light of the vote.
The impact of Brexit on the legal aspects of UK pension schemes is likely to be felt mainly in the medium to longer term. The UK remains a member of the EU for the time being and the status and effect of all UK and EU law remains unchanged. As the pensions regulatory regime is embedded in UK legislation, it will remain in force once the UK has exited the EU, although the UK legal position may then diverge from the EU position over time. Changes in the future will depend on the nature of the continuing relationship between the UK and the EU.
TPR urges trustees and sponsors in its statement to remain vigilant and review their circumstances, but to continue to take a considered approach to action with a focus on the longer term. It highlights the market volatility as a result of the vote, noting that this may continue in the coming weeks and months, and states that trustees should as part of their on-going risk management review their position, keeping in mind that pensions are a long term investment.
There is likely to be some impact on the ’employer covenant’ to pension schemes arising from the Brexit vote. Pension scheme trustees may need to revisit their overall scheme funding strategy in light of this, possibly considering contingent assets. TPR urges trustees to have open and collaborative discussions with employers.
Members may be concerned about the implications of Brexit for their benefits, so trustees may wish to include some reassurance about the position in scheme communications.
DC governance: Code of Practice and ‘How-to’ guide
TPR’s new Code of Practice on DC governance and administration has come into force. This sets out the standards that pension trustees of affected schemes need to meet to comply with legislation. To accompany this, TPR has also issued six ‘how to guides’ for trustees, which are designed to help trustees implement the revised DC Code.
TPR has also produced a ‘scheme assessment template’: a tool designed to help trustees to assess their scheme against the standards in the Code, so that they can identify areas requiring improvement. The template is a ‘traffic-light’ document in the same format as the template previously produced by TPR to help trustees check their scheme against the 31 DC quality features. While that former template has now been superseded, and the DC quality features are no longer referred to in the new Code and accompanying guides, trustees who have been through the process of using the former template will be able to use this to assist with the new document. The new template includes a table at the end setting out how the DC quality features relate to the new standards.
Use of the scheme assessment template is not compulsory but will help trustees to structure their approach to the new standards, to ensure they have documented the position and that assessment continues on an on-going basis, and further with development of the annual chair’s statement.
Trustees of DC schemes or sections should be familiarising themselves with the new Code and How-to guides, and considering steps required to ensure that their schemes are compliant, which may well involve working through the scheme assessment template.