In this blog, Bob Scott says don’t expect a ‘bonfire’ of Brexit regulatory changes but watch out for market movements.
Today, 29 March 2017, sees the Prime Minister trigger Article 50. We now enter a period of negotiation with Britain due to leave the EU by 29 March 2019. According to a House of Commons report, ministers will have to import 19,000 EU rules and regulations onto the statute books as part of the Great Repeal Bill. Not surprisingly, there are calls for a “bonfire” of unnecessary regulations once we leave the EU. These include such rules as those banning powerful vacuum cleaners and traditional light bulbs; rules that require builders to preserve habitats for newts; and the working time directive.
Some commentators have expressed hope that some of the EU-driven pensions legislation might also be repealed. Favourites include: GMP equalisation; unisex annuities; TUPE; PPF compensation rules; and VAT on pension costs. My view is that it is difficult to see much appetite for change in these areas. Indeed, previous governments who have declared a war against red tape have simply ended up making yet more rules and regulation.
For example, looking more closely, it could actually be beneficial to go through the process of equalising benefits for the effect of unequal GMPs if (as proposed in the recent consultation from DWP) the outcome was elimination of GMPs altogether. That would be better than leaving them in their current, unequalised, state.
And who can argue that it is essential to reflect gender in annuity rates when, in all other walks of life, the direction of travel is away from gender discrimination.
IORP II recently became EU law and will enter UK law before 29 March 2019. Although it will have a significant impact on UK pension schemes, that doesn’t mean it should be repealed. Indeed, there is much common sense in certain of its provisions, notably the requirement for schemes to appoint a risk manager and an internal auditor.
So, all told, I’m not holding my breath in anticipation of Brexit leading to sweeping changes for UK pensions legislation. For change, we should look closer to home – the government’s recent Green Paper on DB pension provision; changes to State Pension Age in light of the Cridland review; and the forthcoming review of auto-enrolment.
There has been much talk of the impact of Brexit on markets. It is true that sterling has devalued against major currencies (for example it currently stands at $US1.26 compared to nearly $US1.50 pre-referendum; and at €1.15 against to €1.30 before). This is one of the factors that has caused CPI inflation rise to 2.3% for the year to February, compared to a year-on-year rise of just 0.3% to February 2016. However, asset prices are significantly higher – the FTSE100 index stands at nearly 7,300 after falling below 6,000 immediately following the referendum and bond yields are still lower than they were in June despite recent rises.
As negotiations over the terms of Brexit proceed, markets will react and those pension schemes that are in a position to take advantage of market volatility will be rewarded. But just as important as market movements will be the effect of Brexit on the sponsoring employer’s business. Different business sectors will be impacted differently, with sectors such as finance, tourism & transport, car parts & manufacturing, construction, import / export likely to be most affected.
So, in summary, don’t anticipate a bonfire of regulations, rather quite the opposite. And, in the meantime:
- ask your investment consultant how you can position your scheme to take advantage of market changes;
- be mindful of the potential impact of Brexit on your sponsor’s business in the short and medium term; and
- be alert to other changes in pensions driven by the UK’s domestic agenda.