UK: Should I Stay Or Should I Go Now?

Last Updated: 24 March 2016
Article by Wedlake Bell

If I go there will be trouble
And if I stay it could be double
So you gotta let me know...

(with apologies to Joe Strummer and Mick Jones)

The EU: historical background

In 1951, following the signature of the Treaty of Paris by France, Italy, West Germany (as was), Belguim, The Netherlands and Luxembourg, the European Coal and Steel Community was thereby created. An international organisation based on 'supranationalism' and international law, it was designed to help the economy of Europe and prevent future war by integrating its members. (Source: Wikipedia.) The UK joined what had become known as the EEC in 1973, and our first referendum on continued membership took place as early as 1975. The only two countries to have left the Community are Algeria (in 1962, upon gaining independence from France) and Greenland (in 1985, following its own referendum on the subject).

The supremacy of European law

European law is made up of treaties and other legislation, predominantly regulations and directives, that have supremacy over domestic law. Some European law automatically confers rights upon its citizens, and is thereby known as having "direct effect"; whereas some does not, meaning that Member States are required to give effect to it via domestic legislation. Perhaps two of the best-known pieces of European law in the pensions context are the Treaty of Rome (which ultimately gave us "Barber equalisation") and the Insolvency Directive (which led, amongst other things, to the creation of the PPF).

Uncertainties in the interpretation of European law are dealt with by the European Court of Justice, and its judgments bind our domestic courts. A domestic court that is uncertain of the impact of European law on a matter it is considering will "refer" specific questions to the ECJ; after it has answered them, the domestic court then has to apply them to the matter in hand. Quite often the questions are very situation-specific and subsequently transpire not to pre-emptively answer all issues with which the domestic courts are concerned, with further references to the Court sometimes needed. The fact that it took 4˝ years from the judgment in Barber, to reach a position of certainty in Coloroll as to exactly how benefit equalisation was to be implemented, is a classic example of such inefficiencies in action.

The potential impact of Brexit

A British exit from the EU, as well as (as we understand it) shifting our border with France from Calais to Dover, would remove the need for our domestic legislation to comply with EC law. Clearly that would be unlikely to have very much effect in relation to existing legal requirements that have a European treaty, regulation or directive as their provenance. But it could mean, for example, that overriding requirements of EC law which have not yet been implemented into our domestic legal system, might never yet be. Without wishing in any way to pass comment on whether GMP equalisation is actually required by EC law or not in the first place, a Brexit would – we think – almost undoubtedly lead to significant all-party pressure to scrap an initiative that is already starting to go down as one of the most unpopular legal exercises of modern time.

What do we have to thank the EU for?

So, rather than trying (and almost certainly failing) to foresee the legal impact of a Brexit, we think it is quite instructive simply to look back at the legacy that European law has given us. The impact of our membership of the EU for the past forty-something years will therefore be clear for all to see. Accordingly, set out below are some examples of the most important pieces of UK pensions law that have their roots in our membership of the EU.

Equal treatment

Sex discrimination – benefit equalisation – equal pay for equal work – Article 119 Treaty of Rome, and Barber v. Guardian Royal Exchange.

Sex discrimination – part-timer claims under Equal Pay Act s2(4) and s2(5) – Preston & Fletcher.

Age discrimination – Equal Treatment Framework Directive – Equality Act 2010 and regulations made under it.

Scheme funding

Scheme-specific funding / "statutory funding objective" – IORP Directive – Part 3, Pensions Act 2004.

Protection of employment

TUPE – Acquired Rights Directive – protection of employment rights (other than those relating to pensions) on a business transfer – albeit with an exception, in the form of Beckmann-style redundancy or early retirement entitlements.

Corporate failures

Pension Protection Fund – Insolvency Directive – the inadequacies of the "minimum funding requirement" exposed for all to see. On top of which, of course, the entire 'moral hazard' and anti-avoidance regime, along with the need for a pro-active, risk-focused Pensions Regulator, emerged as a direct consequence.

We are sure you will agree there is quite a legacy here. And this is only the beginnings of a comprehensive list. Whatever happens on 23 June (and/or with GMP equalisation), we already have quite a lot to thank Europe for...

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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