Pensions law - A genuine mix
UK Pensions Law is a rich patchwork of our own mediaeval trust law, numerous tax legislation and EU derived law that then overlays our UK domestic law. EU derived law tends to relate to the relatively new changes like the introduction of Pension Protection Fund and the scheme specific funding regime, as well as now more historical legislation like the equal treatment laws dating back to 1976. Then there is our very own pension legislation like the highly complicated auto-enrolment that has been drawn up after looking at, in particular, pension provision in Australia, New Zealand and America. Even with the Pension Protection Fund, although based on an EU requirement, our legislators were keen to use the US model as a starting point. So our legislation is a genuine mix.
Whatever happens with the EU referendum on 23 June, it will take time for any legislative changes to work their way through the system and pension changes won’t be top of anyone’s agenda except for pension professionals. Our UK courts have to interpret those parts of our domestic law that is derived from EU law in a way that is consistent with the underlying EU law. The final arbitrator over the interpretation of this is not our Supreme Court but the European Court of Justice. So there could be a subtle shift over time in how some of our legislation is interpreted if the UK were to leave the EU.
Probably the particular type of scheme that the employer, the trustee or the individual is interested in won’t make a difference to this analysis. Even our state pension arrangements and public sector schemes can’t escape the far reaching tentacles of EU law, nor can insurance companies, who are due to have higher capital requirements flowing from EU law. However at this time of risk, it is hard to argue about the benefits of insurance companies being more capitalised, even if this comes at the cost of increasing the price of long term insurance products, like annuities. No one wants a failed insurance company.
The parking of some intractable pension problems
Some intractable pension problems might be parked indefinitely if there is a vote to leave in the referendum, like how exactly to word a tripartite agreement for the recovery of VAT by employers and trustees on third party pension contracts, or a definitive statement on how to equalise GMPs, the watered down and holistic balance sheet arising from IORPS II and the funding problems that can arise on mistakenly creating a cross border scheme. Probably even some supporters of staying in the EU might be glad to see the back of these issues.
Investment risk and opportunities
No one quite knows what might happen in the lead up to Brexit and in its immediate aftermath, let alone its longer term consequences. However whatever happens there is bound be investment opportunities for the brave, or those who have strategically bunkered down into an investment position, and investment risk for the rest - those who are not in a position to be brave with their investments nor are they sophisticated nor nimble enough to bunker down. This will include many ordinary DC members whose best hope is perhaps to take a long-term view of their pension savings and ride out any market change. There is a question mark over to what extent advisers, investment managers and global custodians should be more active in flagging these types of risks and helping individuals to find a route through them but, as with much else that relates to DC schemes, the potential variables are probably too great for anyone to be able to fully advise on this. That can’t be satisfactory from the consumers’ perspective.