In this blog, Jonathan Camfield takes a look at what the results of the EU referendum might mean for UK & EU pensions law
With impeccable timing, the European Commission published the final text of a major piece of European pensions law (“IORP II”) just a few days after the UK voted to Brexit.
If the UK were to have remained in Europe, IORP II would have had a major impact on the day-to-day running of UK pension schemes from 2018 – or before then if the UK government had decided to implement the changes sooner, perhaps in the light of the systemic pension risks exposed by the BHS enquiry. The big ticket item in IORP II is the new requirement for every pension scheme to appoint two new roles - a “risk manager” and an “internal auditor”. These individuals will act to beef up risk management generally, along the lines of the risk management approaches insurers have to use in complying with Solvency II.
Following the Brexit vote, there’s clearly a chance that the UK will not need to comply with this latest legislation, and many commentators seem to be hoping that we can avoid it.
However, my view is that it remains more than likely that, one way or another, our 6,000 pension schemes will need to comply with the new rules. I can think of at least four ways in which this could end up being the case:
- We end up triggering Article 50 (Brexit) after the enacting of IORP II (probably sometime in the Autumn) and the lawyers tell us that we therefore need to comply with IORP II;
- For whatever reason, we end up not actually leaving the EU after all (second referendum? General Election?);
- We leave the EU, and the terms of our new relationship with the EU are similar to Norway which, broadly, is required to comply with EU pension legislation; or
- We leave the EU, and we don’t need to legally comply with IORP II, but a UK government decides that better risk management for pension schemes is a good thing in the light of BHS, Tata Steel etc, and decides to adopt the European rules (or something close to them) in any event.
So don’t hold your breath yet for avoiding this additional compliance burden from 2017 or 2018.
And, of course, if Scottish independence from the UK occurs as well as Brexit, then this opens a Pandora’s Box of possibilities about how schemes with active members on both sides of Hadrian’s Wall might operate and what regulatory regime might apply to them!