It has been nearly three years since the then Prime Minister gave the European Council formal notice of the UK’s intention to leave the EU.
We are all familiar with key events that have unfolded since then, not least the acrimony, polarisation of society and ugly scenes in the UK Parliament all of which were comprehensively covered by television, radio, newspapers and social media.
However, all said and done, it now looks as though Brexit will actually happen and that the UK will subsequently cease to be a EU member state.
Assuming that a ‘no-deal’ Brexit is avoided, a post-Brexit transition period will run from exit day until 31 December 2020, and could be further extended. During that period, most EU law will continue to apply to the UK and so it will look as feel, in many regards, as though the UK is still part of the EU.
The Withdrawal Agreement Bill has now been approved by Parliament and the Queen and has been signed by the EU Commission and Council; the European Parliament is expected to vote for it on Wednesday 29 January. It will amend the European Union (Withdrawal) Act 2018 (EUWA) to save the effect of most of the European Communities Act 1972 for the duration of the transition period, and will create the new body of retained EU law at the end of the transition period.
At the end of the transition period, the withdrawal agreement will address the future UK-EU relationship.
If the event of the UK and EU failing to conclude a withdrawal agreement, the UK will still leave the EU. However it will do so without an agreement or a transition period. EU law will stop applying to the UK on exit day.
In either scenario, what are the short-term implications for pensions?
The answer, at least from a legal perspective, is ‘not much’.
Most EU pensions law has already been incorporated into UK legislation and any changes will require further UK legislation, and the appropriate Parliamentary processes that precede it.
We may, over time, see divergence between UK and EU pensions law but, except perhaps for those few employers operating cross-border pension schemes, legally it will be business as usual.
There is less certainty from the perspectives of pension scheme investments and employer covenants.
Financial and economic volatility, the degree of which could be dependent on how the UK leaves the EU (see above), could be a major issue, but will be very scheme specific. Investment strategy, sponsoring employer covenant and the resultant impact for scheme funding should be considered as part of a scheme’s ‘integrated risk management’ (IRM).
Finally, some thought may also need to be given to operational issues where, for example, schemes pay pensions to EU ex-pats after the UK ceases to be a member state. The expectation, however, is that these pensioners will continue to receive their retirement incomes without interruption.
In the meantime, The Pensions Regulator has set out the areas it expects trustees to focus on in order to prepare their schemes for Brexit and all trustees should be familiar with this guidance: