Looks at the emerging discussion about the potential implications of Brexit for EU pensionsJump to full report >>
The design of pension systems is largely the responsibility of Member States. The regulatory framework at EU level covers:
The Pension and Lifetime Savings Association (PLSA) explains that UK workplace pension schemes tend to operate on a national basis but want access to investment opportunities and service providers in the EU:
EU legislation has an impact on them:
Following the vote on 23 June, the regulators said existing law would continue to apply until changed by the UK Government and Parliament (FCA Statement on European Union referendum result, 24 June 2016).
The PLSA said pension schemes do not want major regulatory upheaval:
UK pensions law is extensively intertwined with EU law, regualtions and court rulings. There is no need to dismantle this framework - and very little to gain from doing so. (PLSA, Brexit and Pension Schemes: Getting the right deal for Britain’s savers, January 2017).
It says that while they would welcome clarification on whether the revised IORP II Directive will apply, in the UK, of greater concern is the potential EU legislation on a solvency-based funding regime for pension schemes (Ibid).
There have been questions in the pension press about whether the Government will proceed with complex rules to require the equalisation of Guaranteed Minimum Pensions (GMPs). However, the PLSA argues that the UK's own Equality Act and continuing participation in the European Convention on Human Rights will prevent this outcome (Ibid). A new EU Directive on Data Protection Regulation is expected to apply in the UK (Occupational Pensions, September 2016).
Following the vote to leave, the Pensions Regulator warned against "knee-jerk reactions" but said trustees should review their position to understand the risks in the scheme's investment strategy and employer covenant (their legal obligation and financial ability to support the scheme). (Market volatility following the EU referendum: guidance statement from TPR, July 2016).
The PLSA says that the most obvious immediate policy consequence of the referendum had been:
[...] the Bank of England's announcement of a 0.25% reduction in the base rate and further £60 bn of quantitative easing (QE) announced on 4 August. QE, in particular, has undoubtedly contributed to pension fund deficits. (PLSA, Brexit and Pension Schemes: Getting the right deal for Britain’s savers, January 2017).
Lane Clark and Peacock have looked at the impact on scheme's abilities to de-risk (LCP, Pension de-risking, September 2016 update).
According to the PLSA, the UK has the larges pensions sector in Europe, providing pensions for 20 million people and with over £1 trillion of assets under management. It argues that a successful outcome from the Brexit negotiations would include the following:
The ABI has called on the Government to “make a clear commitment that it will seek an early agreement with our European partners on a high level transitional implementation period which will help avoid economic shocks to both the UK and the EU”. It has also set out ‘five key asks’ for UK insurers:
Commons Briefing papers CBP-7629
Author: Djuna Thurley