Ian Cormican, partner, Sackers explores the possible ramifications of a vote to leave the EU for pension schemes

On 23 June 2016, the UK will hold a referendum in which eligible voters will be asked “Should the United Kingdom remain a member of the European Union or leave the European Union?”. 

Balot paper

In the event that the UK votes for “Brexit”, what could that mean for UK pension schemes?

Market volatility 

Markets have been volatile since the start of 2016 and will inevitably remain jittery in the run-up to the referendum. Should the UK vote to leave the EU, markets are likely to remain unsettled during the two year period (or potentially longer) in which the UK will negotiate the terms of its withdrawal.

Trustees will want to consider the implications of the referendum on their investment strategy, both in minimising the effects of short term volatility around the date of the referendum and, if the UK votes to leave the EU, in monitoring their strategy in light of changing market conditions. Trustees and employers should ensure their ongoing integrated risk management processes are up-to-date and that they understand any actions which will be required should the effect of a vote for Brexit on the scheme’s investments result in a worsening of the funding position.


Trustees will need to be aware of the potential impact of a vote for Brexit on their hedging arrangements. For example, the value of collateral posted in the form of gilts or bonds could reduce if Brexit were to result in a downgrade of the UK’s credit rating or that of bond issuers such as UK financial institutions.

Similarly, a downgrade of UK financial institutions may have implications under derivative contracts, including triggering increased collateral requirements or termination rights. Should any overseas counterparty banks move away from the UK following a vote for Brexit, this may also have contractual implications.

While it is difficult to plan for such an event, trustees may want to review their counterparty arrangements to enable them to both understand their potential exposure and respond quickly to events.


Much of the UK legislation affecting pension schemes has its roots in the EU. “IORP” or the workplace pensions Directive, which deals with funding, investment and governance among other things, is one of several EU Directives which has been incorporated into UK legislation and which affects the day-to-day operation of workplace pensions in the UK.

The financial sector is also extensively regulated through EU legislation such as EMIR and MiFID II. While it seems likely that equivalent legislation would remain in place following a vote for Brexit, this will ultimately depend on both the form of the relationship agreed between Britain and the EU and the political appetite in the UK to dispense with or amend existing UK legislation.

Employer covenant

A Brexit vote clearly has the potential to directly affect a scheme’s funding position and investment strategy. The changing trading environment could also have an adverse impact on the business of the sponsoring employer.

Trustees should monitor the implications of this and consider whether additional security is required. Existing contingent assets should be checked to see whether any reporting requirements or funding triggers might come into play.

Ian Cormican, is a partner, Sackers explores