Much of EU source UK pensions law is sensible and at most should need minor adjustment. Broadly speaking the following areas are in this category (but see below re GMPs and sex equality):
Sex discrimination, part timer claims and age discrimination
Equality Act 2010 and Regulations
(Original) Article 119 Treaty of Rome
Equal Treatment Framework Directive
Pensions Act 2004 and Regulations
EU IORP Directive
Data Protection Act 1998
The European General Data Protection Regulation has recently been published and is due to take effect across the EU from 25 May 2018 – equivalent new UK law may well be needed.
Other areas of UK law are presently less satisfactory due to the impact of EU law. For instance, in relation to pension rights where employees who are members of an occupational pension scheme are transferred from seller to buyer on a business transfer. The UK’s Transfer of Undertakings Protection Regulations (TUPE) apply in these circumstances. The underlying EU Acquired Rights Directive means some additional types of pension rights transfer under TUPE. This area would benefit from reform if and when the UK has a free hand.
Some further thoughts:
- Transfers from UK registered schemes to qualifying recognised overseas pension schemes (QROPS) or to qualifying non-UK pension schemes (QNUPS) – we doubt whether exiting the EU will impact the UK legislation in these areas but this remains to be seen; and
- VAT Directives: the impact of leaving the EU on HMRC’s present approach to VAT on supplies of services to pension schemes by third parties and HMRC’S proposed rules re tripartite contract between employers, trustees and suppliers – Brexit may lead to HMRC extending the transitional period due to expire on 31 December 2016 and to postponing its proposed tripartite contract rules.
- Sex equality: leaving the EU may be an opportunity for the government to decide that there is no need for sex equality for scheme members’ GMPs (guaranteed minimum pensions).
Commercial impact on sponsors of defined benefit pension schemes
In contrast to Brexit’s impact on pensions law, the impact on business of the Brexit vote may be significant and hence must be considered by scheme trustees and covenant advisers in assessing the employer’s covenant. The impact will vary from business to business and may take time to become clear.
Upon the UK’s exit from the EU longer term schemes with EU but non-UK sponsors or guarantors will be more removed from the reach of UK trustee boards and from the UK Pensions Regulator. The present EU law on enforcement of cross-border debts (e.g. a pension debt under section 75, Pensions Act 1995) and the EU insolvency framework (under the EU Insolvency Regulation) may cease to be available, leaving parties to operate less user-friendly cross-border mechanisms.
Scheme assets will in most cases be immediately impacted positively or negatively by the Brexit vote. The overall economic forecast has also changed e.g. the long term prospects for inflation (up?) and interest rates (down?).
Trustee boards should ensure they obtain appropriate professional advice as to possible/recommended steps. Seismic events such as the Brexit vote at least require trustees to take stock in the interests of prudency and to record this in risk registers, even if it is too early to make changes.
Possible easing of accounting rules – the government’s response to the economic shock of Brexit (e.g. possibly more quantitative easing) may increase the value of schemes’ pension liabilities. Accordingly the Pensions Minister has stated that the government is reviewing the rules on how pension schemes account for their liabilities, so that the stimulating effect of post-Brexit economic measures is not undermined. Possibly some good news for pension schemes!
For further information please contact Clive Weber or a member of the Pensions & Employee Benefits Team.