Quitting the EU could have a far-reaching effect, says Sackers’ Helen Ball
The political timescale and process for leaving the European Union remains unclear for the time being.
Any effect on the legal framework surrounding occupational pension schemes and the investments that they hold will depend on the UK’s agreed terms of exit and the attitude of future UK governments to areas of pensions law that derive from our EU membership.
In the short term, commentators agree that there will be no major changes to UK pension provision. It is expected that the UK government will not have the capacity to deal with pension related matters given the scale of the task they are facing. In the longer term, any changes will depend on the terms of exit.
Impact on DC investments
Investment strategy could be affected by market volatility and economic factors, such as the cut in the Bank of England base rate of interest from 0.5% to 0.25%. Faced with such uncertainty, trustees should ensure that they monitor investment strategy closely and that members continue to receive clear communications about their options.
Impact on employment
Most commentators are not expecting any hurried changes to equality or employment legislation. However, pension funds could be affected by practical matters such as members deciding to retire later, changes to recruitment strategy, and potential repatriation issues for UK nationals returning from other EU member states, and also of EU nationals out of the UK.
Impact on data protection
The General Data Protection Regulation (“GDPR”) is scheduled to come into force in EU member states on 25 May 2018. Although it is too early to be certain, it is looking increasingly likely that the GDPR will apply before the UK exits the EU and ceases to be an EU member state, even if only for a short period of time. If that happens, trustees will need to comply with new data protection requirements.
Looking at longer term implications, political pressure on public finances could lead to a change in tax relief and reduction in the state pension triple lock. Together with reduced “buying power” for members seeking an annuity, this could have wider implications for longer term reward strategy.
We do not expect major changes to UK pension provision in the very near future but there could be medium- to long-term uncertainty around pension schemes. The implications of any changes are far-reaching, so trustees should maintain a watching brief over events.
Helen Ball is partner and head of DC at Sackers