21st June 2016
Pension implications of the EU Referendum
Whichever way the EU referendum goes, pension scheme trustees should be alert to changing economic conditions that may cause them to review and, if needed, revise their investment and/or funding strategies.
This will include considering the investment risk profile of the scheme and ensuring it is sufficiently diversified to withstand any market volatility that the referendum causes. Trustees of defined contribution schemes will also need to consider whether the investment options offered to members continue to be appropriate.
In its code of practice on funding defined benefits, the Pensions Regulator encourages trustees of defined benefit schemes to have a view on a range of likely adverse outcomes and plan, in a proportionate way, to address those outcomes. This might include things like identifying triggers for the provision of information from the scheme employer and its actuary or auditor: legislation requires those bodies to disclose to the trustees, on request, such information as the trustees or their professional advisers reasonably require for the performance of their duties.
If an employer’s business is affected by the outcome of the referendum, trustees of defined benefit schemes might need to seek updated employer covenant advice. Where material changes in circumstances make it unsafe to continue to rely on chosen assumptions used in funding documents, such as the recovery plan, trustees can also review and revise these documents (with the agreement of the employer where necessary).
More widely, most European-derived pensions law relates to equal treatment and the protection of pension rights on employer insolvency, and is unlikely to be repealed or changed substantially in the near future if the UK voted to leave the EU.
Whilst the referendum may not lead to significant changes in pensions law, its impact on investment performance and scheme sponsors could be significant and needs to be closely monitored.
For advice on pensions law, please click here to email Christopher Nuttall or call him on 01604 463134.
For more information please visit our Pensions page.