James Walsh lays out the five top concerns for PLSA members as the UK prepares to negotiate its EU exit
It’s been quite a summer. From a vote to leave the EU to Olympic glory, the UK has been at the heart of some historic events. But while the commentators have been focused on the plaudits Team GB has been winning in Rio and the raspberries received in Brussels, the Pensions and Lifetime Savings Association (PLSA) has been on the road listening to our members.
Since the UK voted to leave the EU in June, we’ve been touring the country to brief members on the implications of Brexit for pension schemes. Most importantly we’ve been getting our members’ input on the referendum’s impact so far and on what they want to see from the negotiations on the new UK-EU relationship.
There are many aspects to the debate about how Brexit will affect pensions, with a range of opinions on each one. Investment strategies are obviously a key issue, but the clear message from PLSA members is that they are not rushing to make changes in the short term. Economic volatility, including interest rate cuts and quantitative easing, are a big concern to members and are undoubtedly damaging for DB funding. However, pension funds take the long-term view.
Brexit’s impact on sponsor covenants is also high on trustees’ radar. While the typical verdict is that the impact is negative in the short term, a substantial minority of schemes (typically those sponsored by net exporters) report a more positive effect. In short, it depends who you ask.
Further issues highlighted by PLSA members include:
- Scottish independence. If Scotland were to leave the UK, many schemes would find themselves faced with two diverging regulatory regimes.
- Will the UK have to implement the new IORP Directive? In theory, yes. In practice, this will probably be resolved as part of the Article 50 negotiations. It is difficult to see the UK implementing new EU legislation just months before departure.
- GMP equalisation. The picture here is far from clear, but there is a decent chance that this long-standing regulatory threat might fall away.
To guide our work we have established a Brexit Taskforce of members and staff. The taskforce will develop a pensions’ industry view on the big political question of what shape the new UK-EU relationship should take. The taskforce will also address the question of which items of EU-originated pensions law we would like to see retained, removed or amended.
Clearly there’s a long way to go with Brexit. There are many unknowns and many of the pensions-related issues are highly complex and likely to take some years to resolve. Our role is to ensure we can help our members be as prepared for Brexit as they can be and to ensure the pensions’ industry’s concerns are heard loud and clear by policy-makers. In the meantime, it’s business as usual.
James Walsh is policy lead: EU & international at the Pensions and Lifetime Savings Association