Prime Minister Theresa May this week laid out the government’s plans for Brexit, prompting questions from the pensions industry over the role of EU law in UK pensions over the longer term.
The government’s plan is based around 12 priorities, which May said would lead to “a new, positive and constructive partnership between Britain and the European Union”.
It gets interesting when we start to diverge and how we diverge
Penny Cogher, Irwin Mitchell
The priorities are as follows:
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Provide certainty for business and the public sector as much as possible throughout the process
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Leave the jurisdiction of the European Court of Justice
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Strengthen the union between the four nations in the UK
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Maintain the Common Travel Area with Ireland
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Control immigration to Britain
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Reach a deal for EU nationals in Britain and British nationals in the EU
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Protect workers’ rights
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Achieve the “freest possible trade in goods and services between Britain and the EU’s member states”.
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Create new trade agreements with the rest of the world
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Seek to collaborate with EU countries on science, research and technology initiatives
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Co-operate in fighting crime and terrorism
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Ensure the smoothest possible Brexit
Soothing the market
Bob Stark, commercial director at pension advice specialist Portafina, said May’s comments were an attempt to calm fears over the process of leaving the EU.
“It was clearly a speech designed to calm the markets, and it’s done that,” he said. “She hasn’t said anything that comes across as daft.”
He continued: “There’s going to be volatility coming at some point. That will be when things start to happen,” referring to when the process is underway.
Measuring investor sentiment
Most institutional investors expect to keep their UK holdings over the next six months, a pulse survey launched by financial services provider State Street Corporation has shown.
The survey, which will be released quarterly as a “Brexometer index of institutional investor sentiment” shows 63 per cent of those surveyed expect to maintain their holdings in UK assets over the next six months.
Despite this, 80 per cent expect Brexit to impact their operating models, and just 31 per cent believe asset owners will reduce their investment risk over the next three to five years, up from just 26 per cent previously.
Stark emphasised the need to take a long-term view to weather the years of transition.
However, he added: “The government will be preoccupied with this for a while, so they might not be tinkering about with [pensions].”
Protect sponsor covenant
James Walsh, lead for EU and international policy at the Pensions and Lifetime Savings Association, said the biggest priority is to have a strong economy to protect UK pension schemes.
“That’s what’s most important to pension schemes, as it translates through to sponsor covenant,” he said. He noted that the PLSA has written to David Davis, secretary of state for exiting the EU, to emphasise the point.
Walsh also said it is important to make sure pension regulations are not changed as part of sweeping regulatory changes affecting related industries like finance.
“We don’t want workplace pension schemes to get stepped on in a broader decision about financial services,” he said. “There are some specific issues that need a close focus.”
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He said the association wants access to the single market while protecting UK schemes from any future solvency regime. “We want to get the right regulation.”
Preserve existing laws
Another detail revealed during May’s speech was that the “acquis” – the existing EU laws – would be converted into British law.
“This will give the country maximum certainty as we leave the EU,” said May. “The same rules and laws will apply on the day after Brexit as they did before.”
While this increases certainty around many of the regulatory issues surrounding Brexit, Penny Cogher, partner at law firm Irwin Mitchell, said questions remain regarding what would happen to cases currently before the European Court of Justice, such as the case of Hampshire v the Board of the Pension Protection Fund.
She added that while the existing body of law may not change much, as law and policy develop the UK could become increasingly distant from Europe.
“It gets interesting when we start to diverge and how we diverge,” she said.
“I just don’t think they’re going to be dismantling things. We might find things get very difficult once we are actually out of Brexit because that’s when it starts to get difficult about what we’re going to do; there’s no one guiding us, we have to make our own policies.”
