Summary and implications

With the referendum result confirming a UK withdrawal from the European Union, what, if anything, should pension scheme trustees and sponsoring employers be doing at this stage?

From a legal perspective there will be no immediate change. Longer term, there could be some modifications to pensions legislation and regulation in areas which derive from EU law. These include scheme funding, equal treatment and data protection. We considered this in a briefing issued last month.

The immediate impact, which is already evident, is the effect on the markets (and it is anticipated that this volatility will continue over the period of the Brexit negotiations). Trustees should consider taking advice from their investment advisers as to the implications of Brexit.

Some commentators suggest there may be a rise in interest rates and inflation which would affect the value both of assets and liabilities. Trustees may wish to liaise closely with their Scheme Actuary. The Pensions Regulator suggests that where, having taken advice from the actuary, it seems to the trustees that material changes make it unsafe to continue to rely on current assumptions, funding and investment strategies should be reviewed and, if necessary, revised.

Moreover, as part of their ongoing integrated risk management considerations, trustees will need to monitor the effect of Brexit on their sponsor covenant and react appropriately.

Trustees of DC schemes may also see a change in the behaviour and decision-making of members as they approach retirement due to market volatility.

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.