Pensions shrouded in uncertainty as UK votes to leave

The result came as a shock to many, as a remain outcome was predicted by the majority of polls and betting odds when voting closed.

We all know pensions is a long-term game. It might be that the long-term outlook isn’t radically altered

Steve Webb, Royal London

The FTSE 100 fell more than 8 per cent when the market opened on the morning of June 24, the day after the referendum, while the wider FTSE index fell 12.2 per cent.

The narrow win for the Leave campaign was followed by the news that David Cameron would step down as prime minister by October. This could mean that chancellor George Osborne, who has delivered several Budgets causing upheaval in the pensions world, might have to go too.

Market uncertainty

Jonathan Reynolds, client director at independent trustee company Capital Cranfield, said a vote for Brexit would have a negative impact beyond short-term market volatility.

“There’ll be a short-term shock,” he said, and uncertainty over the exit negotiations, after which it will settle down again, but: “I think an exit [will] be, long term, damaging.”

However, he said the fundamentals of “having enough money to pay your pensioners” would not change.

Steve Webb, director of policy at provider Royal London, urged schemes to “keep a cool and level head”.

“It’s going to be a risky road,” he said, but added: “We all know pensions is a long-term game... It might be that the long-term outlook isn’t radically altered.”

Richard Butcher, managing director at independent trustee company PTL, said uncertainty was likely to be a challenge for investments.

“What has been created is volatility”, he said. “The markets don’t like uncertainty.” He said it was unclear how long the lack of clarity was likely to last.

Legislative tinkering

Butcher said UK schemes may not face huge changes to the European laws they adhere to.

“I think it’s unlikely there’ll be a bonfire of the European regulations currently in place,” he said. “If there is any repealing it’ll be around the periphery.”

Matthew Swynnerton, partner at law firm DLA Piper, said the legislative impact would be divided into two areas: the rules already in place and those in the process of being introduced.

For the rules in place, Swynnerton said: “Because they’ve already been implemented within the UK legislation they’ve become enshrined. Whether it would be possible to change it will be dependent on exit terms.”

However, he said the fate of pending rules, such as equalisation of guaranteed minimum pensions and the Institutions for Occupational Retirement Provision directive, were less certain.

“The IORP directive... would have imposed more governance requirements,” he said, adding that if these were to be scrapped, “that would be welcomed by advisers and by other schemes”.

No more TEE?

David Cameron’s resignation also raises questions about who will be chancellor under his successor, and whether potential policy changes for pensions – such as a taxed-exempt-exempt regime – are now off the table.

Marcus Fink, partner at law firm Ashurst, said TEE will not go away. “TEE is likely to be prominent in any post-Brexit Budget, regardless of the chancellor. At a time when [HM Revenue & Customs] coffers will be hit hard, pension funds will... be seen as an easy cash grab.”

Malcolm McLean, senior consultant at Barnett Waddingham, said whether potential new appointments could create more stability for pensions was unclear. He added that he hoped TEE will no longer be a topic. “I hope TEE is off the agenda and we can have a period of restraint to consolidate and build on the substantial changes that have already occurred over the last few years.”