A farewell present
to pension schemes from the EU?
29 December 2016
Not in my view. I think it is likely that UK occupational pension schemes will ultimately have to comply with IORP II.
So why is that?
The UK Government’s current plan for Brexit is that Article 50 will be triggered in Q1 2017, which means the UK will leave the EU in Q1 2019, or later. EU law requires that IORP II is written into national legislation by 13 January 2019. The Government has stated that at the point of exit the UK will enshrine all applicable EU legislation at that time into UK law. So that would include IORPII.
There is clearly some uncertainty here, and Brexit may not unfold as planned. But a sensible working assumption would seem to be that IORP II will apply to UK occupational pension schemes from around 1 January 2019.
So what would be the implications of this?
Well, as set out in my colleague Jonathan Camfield’s previous blog, they would be widespread. IORP II introduces significant new governance requirements, with all occupational pension schemes being required to appoint risk managers and internal auditors and have written policies and contingency plans, with regular review and reporting. This alone represents a very significant step change in governance requirements for the majority of UK schemes.
And this is not all. IORP II extends the existing IORP Directive from 12 pages to over 100 pages, changing and introducing new requirements over a whole range of areas. Making the changes required to comply with this legislation is going to be a lot of work for those involved in running pension schemes.
So, what to do?
When and if IORP II is written into UK law, a lot of the detailed requirements will be included in regulations, which have not yet been drafted. So it is too early for detailed planning.
However, many DB pension schemes are currently working through the Pensions Regulator’s Integrated Risk Management guidance, implementing and documenting risk management processes. It would make sense to have one eye on the requirements of IORPII when doing this, to avoid the risk of having to reinvent the wheel in 2019.
Similarly, where pension schemes are reviewing member communications, eg annual benefit statements, these can be future-proofed by making sure that they comply with the detailed requirements of IORPII.
And thinking about how your investment strategy reflects environmental, social and governance factors would probably be time well spent.
And, finally, if you are involved in running an occupational pension scheme, you may wish to keep your diary clear for Q4 2018 and Q1 2019. I think you are likely to be very busy.
If you need help in relation to IORPII in general, and the new risk manager and internal audit functions in particular, get in touch.