‘Brexit’ – What are the Likely Consequences for Pensions?

There has been much discussion about possible consequences for UK pensions should the public vote to leave the EU in June. We discuss the main strands of this debate, both legal and concerning the wider pensions environment, and start by confirming our view that Brexit would not mean an immediate change to the regulatory and legal arena of UK pensions.

Good or bad, European law has had a bearing on some of the most challenging themes of UK pensions law. In particular, for equal treatment and the valuation of benefits, as well as in the transactional sphere, EC legislation has had a marked influence on our domestic law. We discuss these primary areas below. As Parliament has mostly reflected provisions of EC law in primary and secondary legislation, this would not cease to apply were we to vote to ‘exit’. For example, the Equality Act 2010 enshrines that most prominent provision of the Treaty of Rome that men and women should receive equal pay for equal work, giving rise to ‘equalisation’ for pension schemes.

On the other hand, following a Brexit vote, our domestic statutes and regulations would no longer be subject to the jurisdiction of the European Court of Justice. So judges would interpret them purely in the UK context and not by reference to EC treaties and directives and the Supreme Court would be the final appeal court on the escalation of any matter. Further, Parliament would be free to amend or repeal any of those statutes and regulations.

Equality and non-discrimination

The equalisation of pension benefits for males and females is an important tenet of the anti-discrimination law relating to pensions. But there are wider implications of EC equality legislation, including the concept of indirect discrimination. An area where this is relevant is part-time working where roles are predominantly undertaken by women.

Other forms of discrimination bring challenges for pension schemes, most obviously age discrimination and also in relation to disability discrimination and the impact on eligibility for ill-health pensions.

For public policy reasons it is unlikely that Parliament would, following a Brexit vote, remove antidiscrimination legislative controls. In addition to public opinion, such a move could be in contravention of human rights (although there have been suggestions the UK may also leave the European Convention on Human Rights on a vote to leave the EU). We think this is unlikely and consider any wholesale reform difficult.

Valuation of benefits

The Pensions Act 2004 incorporates many themes of the “IORPs Directive” of 2003 relating to the governance of pension arrangements. One requirement of IORPs relates to the assessment of "technical provisions" applicable to DB schemes, and we have all become familiar with this. It seems unlikely that Brexit would lead to the repeal of this legislation as the general view is that the ‘scheme specific funding’ provisions of the 2004 Act have resulted in an improvement in funding.

A challenge under IORPs for DB schemes operating across borders was the requirement for fully funded technical provisions at all times. Consequentially, many schemes have withdrawn any cross-border element. It would seem likely that this would be relaxed for UK schemes were we to find ourselves outside the EU and the UK itself would perhaps become an attractive market for a cross-border arrangement.

Corporate transactional issues

Pensions are often approached with great caution when it comes to transactions. A major determining factor for this is the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), which protects employees’ terms and conditions of employment where there is an acquisition of their employer’s business. The treatment of pensions under TUPE is complex and depends on the type of pension scheme rights of transferring employees. ECJ case-law added further complications relating to early retirement and redundancy benefits.

Following a vote to leave the EU, it is conceivable that some adjustment may be made to TUPE. Although we are not convinced that this would be the case, some commentators suggest that TUPE might be repealed altogether, radically changing the treatment of pensions on asset deals and focusing attention instead on, say, the funding of any receiving scheme. However, Brexit would mean that the UK would not be subject to further ECJ case-law.

Investment considerations

Commentators speculate that, as the Brexit vote approaches, there will be sharp spikes in volatilities across many asset classes typically held by pension funds. It has been suggested that gilt yields, interest rates, equity values, corporate bonds and foreign exchange would all be affected. Actuaries have warned that asset allocation and pensions risk management models will likely be tested and asset and liability allocation models used by consultants may no longer be fit for purpose since they are based on historic factors. For their part, investment managers counsel that, whatever the outcome of the vote, low gilt yields are likely to remain, and almost certainly in the short term, which will continue to have a detrimental impact on funding.

In our view, it is prudent that Brexit in a wide sense is an item on all trustees’ agendas and this is all the more important for schemes with weaker employer covenants. Trustees of these schemes should decide if they need to sit and wait or take any short-term action and also, importantly, assess the long-term impact against a backdrop of other global factors, such as stalling growth in other parts of the world economy.

We recommend that trustees speak to their scheme actuary and investment consultants as Brexit approaches.


Maria is a partner in our pensions team who has worked for many high profile companies and schemes. She advises trustees, employers and intermediaries on all aspects of UK pension arrangements, particularly on complex legal issues relating to liability management, scheme changes, mergers, terminations and debt issues following corporate restructuring or insolvency. She has also been involved in high profile pensions litigation, most notably the leading equalisation case of Foster Wheeler Ltd v Hanley & Others. Maria is a full member of the Association of Pension Lawyers, a regular speaker, and ranked as a ‘leading individual’ in The Legal 500.

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