Britain's vote to leave the European Union has shocked pollsters and investors, but what are the legislative and regulatory changes schemes and trustees can expect? James Phillips reports
The results are in and the UK has voted to leave the EU. The market consequences are immediately obvious, with the FTSE 100 dropping substantially, while the value of the pound has fallen to its lowest level since 1985.
But what does Brexit mean for regulation of UK pension schemes?
Little change to existing EU pension laws
Many experts believe existing pension regulation originating from the EU will remain in place, although some believe it could be tweaked.
However, while the UK collects itself from the shock verdict, any change is likely to be in the long term.
DLA Piper pensions partner Matthew Swynnerton believes it may be possible to change legislation relating to scheme specific funding requirements and non-discrimination over the longer term, but feels large scale reform to these rules is "unlikely".
"Depending on what exit terms are agreed, it may be possible for this legislation to be changed. However, as many of the current requirements are designed to protect members, large-scale repeal or reform may be unlikely," he says.
DWP may drop GMP equalisation
But one possible benefit for UK pension schemes would be losing the legal requirement to equalise guaranteed minimum pensions (GMPs). Complexity surrounding the imposition of the directive has caused headaches in the industry, so this could be welcomed.
The Department for Work and Pensions (DWP) is set to consult on how best to implement the equalisation of GMPs, but some experts believe that it could now drop the legislation altogether.
Swynnerton says: "In terms of future legislation, Brexit may mean that any changes under updated draft directive currently under consideration will not need to be complied with.
"In addition, the requirement for equalisations for GMPs comes from EU law, but there has been uncertainty as to how this should be implemented.
"A consultation on regulations on equalisation for GMPs is expected in this Parliament and it will therefore be interesting to see how the referendum result will impact on the government's approach to this issue and whether it will decide that schemes do not need to take action to equalise GMPs."
Irwin Mitchell head of pensions Martin Jenkins says pension managers and trustees may be keen to see the DWP not impose the directive.
He says: "Some intractable pension problems might be parked indefinitely following a vote to leave in the referendum, such as a definitive statement on how to equalise GMPs. Probably even some supporters of staying in the EU might be glad to see the back of these issues."
UK could be exempted from IORP II
It is also possible that the UK will no longer have to adopt revised Institutions for Occupational Retirement Provision (IORP) II legislation.
The proposed directive has been bouncing around the European Parliament, European Commission and European Council for more than a year, with UK members of the European Parliament worrying it would add costs to the pensions industry.
The legislation has been watered down since it was first introduced, with proposals such as a risk evaluation for pensions being replaced by an own-risk assessment decided by national regulators.
However, the finalised text of the directive was expected to be laid before the European Parliament this week, and could be passed into EU legislation before the UK has completed its exit, which could take at least two years.
Swynnerton argues the implications of Brexit on IORP II are not yet certain, but not having to implement it would be welcomed by pension professionals.
He says: "No one can be definitive on what will happen with IORP II now. There has been a lot of speculation, but we don't know enough about the exit terms yet.
"It would be welcome if IORP II did not pass into UK law because the feeling in the industry is that pensions are already highly regulated. It is hard to see who it would benefit."
Dalriada trustee representative Mike Crowe agrees the outcome of the legislation was uncertain: "It's another one of the uncertainties and, if it is going to be kicked out or not followed, the question will be is there something that needs to be put in the UK that mirrors it? If so, could it be more tailored to fit the needs of the UK?"
Association of Consulting Actuaries chairman, and LCP partner, Bob Scott said Brexit could provide a positive outcome in this regard.
He says: "The decision has been made and there may be some upsides along the road. For example, Brexit might mean that the UK escapes insurance-style reserving on DB schemes, which could yet be imposed through a future IORP directive over which we would have had no veto."
However, it is still unclear if the UK will be required to adopt the directive if the European Parliament votes in favour of it before an exit treaty has been negotiated.
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