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Pensions and the end of the Brexit transition period

  • United Kingdom
  • Brexit
  • Pensions


As the end of the Brexit transition period approaches on 31 December 2020, it remains unclear whether a comprehensive deal will be agreed between the UK and the EU.

With this in mind, we have pulled together a practical checklist for trustees, administrators and sponsors setting out ten key issues they should be considering in the event of a no-deal Brexit. Many will also be relevant if a deal is reached.

The main message is to start planning now – and probably on a worst case no-deal Brexit basis because it still isn’t clear whether a deal will ultimately be agreed before the transitional agreement ceases to have effect at 10.59pm on 31 December 2020. Although the EU Parliament has made time to ratify any agreement with the UK during the week commencing 14 December, plans and employers can’t wait until then to decide how to prepare. Because of the Christmas break, we recommend working to a practical deadline of Friday 18 December.

1. Funding: Trustees need to ensure that they are aware of the potential impact of a no-deal Brexit on the sponsoring employer’s business. The Pensions Regulator has said that trustees should “be having open and collaborative discussions with [the] sponsoring employer about deficit repair contributions and how they may change”.

If an employer proposes to reduce deficit reduction contributions to deal with the impact of Brexit, trustees will need to consider whether this is the right thing to do in all the circumstances (including the ongoing pandemic) and, in particular, whether the plan is being treated fairly alongside other stakeholders.

In addition, trustees should review guarantees or other security that may have been given by EU parent or group companies along with any other funding arrangements which might be subject to EU law. They should consider what the governing law of the agreements is and whether there will be any obstacles to enforcing any security or other arrangements.

2. Investment: A no-deal Brexit may lead to short-term market volatility. The Pensions Regulator has reminded DB trustees that pensions are long-term investments and cautioned against any knee jerk reactions. However, trustees will still need to keep an eye on the position in the run up to 1 January 2021 and the months afterwards and monitor the impact of Brexit on their plan. They should also ensure that their long term investment strategy remains appropriate.

DC trustees should ensure that their existing investment strategy will not be affected by the end of the transition period and monitor investment performance to see if changes need to be made. The Pensions Regulator has issued guidance for DC scheme trustees, reminding them that the impact on members may depend on how close they are to taking their benefits.

In addition, if trustees are investing in any products provided by EU based entities, they will need to consider whether those entities will be able to provide services to UK based plans after 31 December 2020 and whether they should be considering alternatives.

3. Members: Where members are resident in the EU, there is no issue in UK law with them continuing to participate in a UK plan (although they won’t get tax relief on their contributions unless they have UK relevant earnings).

However, some UK banks have said that in the absence of a deal with the EU that covers financial services, individuals resident in the EU will not be able to continue to operate UK bank accounts. This means that where benefits are paid to EU residents through a UK bank account, that may not be possible after 31 December 2020 and alternative arrangements may need to be made to ensure benefits can be paid as normal. Plan administrators may already have this in hand but trustees should consider flagging the issue to relevant members.

Trustees should also be prepared to respond to any queries from members in relation to the impact of the end of the transition period on their benefits.

4. Overseas employers: Where a UK plan currently accepts contributions from EU employers, whether those contributions can continue in the event of a no-deal Brexit will depend on the law in the employer’s home country. Employers should check the position as soon as possible with the relevant domestic regulatory authority.

It may also be worth giving some thought to the PPF implications of an EU employer. A plan can only enter the PPF if all of the employers undergo a qualifying insolvency event. After 31 December 2020, EU insolvency proceedings in respect of a sponsoring employer may not automatically be sufficient and additional UK insolvency processes may be required.

5. Overseas plans: Where a UK employer contributes to a plan in the EU, they will need to check whether the law in the relevant EU country will allow them to continue to do this. In addition, where an EU based plan is used for auto-enrolment, careful thought needs to be given as to whether the plan can continue to be used for these purposes.

Employers will also need to consider the tax implications of paying contributions to an EU plan and whether such contributions will be eligible for relief.

6. Administration: Where an administrator is in the EU or uses EU based services, the trustees need to ask whether there will be any change in the services that can be supplied after 31 December 2020. Administrators will need to identify which services may be affected.

7. Data protection: Those who were hoping that the end of the transition period would at least mean the end of GDPR compliance, will be disappointed. GDPR will be retained in UK law in an almost identical format. This does not mean leaving the EU has no data protection implications though. Where data flows from the EEA to the UK, it remains subject to GDPR and as the UK will no longer be subject to GDPR, the EU will need to consider whether the UK has sufficient measures in place to protect data. If a satisfactory conclusion is not reached, it will be necessary to make sure that provisions are included in contracts to deal with data protection to ensure that existing data flows can continue uninterrupted.

Existing agreements with those who process data on behalf of trustees may require consent to be given where data is transferred overseas. This will include data transfers between the UK and the EEA after Brexit so trustees should review existing agreements and consider what consents will be required.

For more detail on transferring data to and from the UK and the EEA and the impact of European law on such data flows, see our speedbrief.

8. Plan documentation: Where current documentation contains references to EU legislation that will no longer apply, no immediate changes will normally need to be made as EU law will be replaced with similar UK provisions.

In the longer term, when documents are being updated, the references to EU law should also be updated. This will be particularly relevant in relation to things such as data protection polices which are likely to refer to GDPR.

9. Pensions law: UK pensions law will be largely unaffected by Brexit.

European equality law will remain embedded in UK law. However, there is a possibility that the two might diverge going forward. The UK Supreme Court and Court of Appeal will be able to depart from EU case law in limited circumstances where they consider it is appropriate to do so. Sadly, this is unlikely to help with issues like GMP equalisation where the UK court has already determined the issue.

Regulations are already in place to implement the governance requirements of IORP II (the second European Pensions Directive). The legislation requires the Pensions Regulator to issue a code of practice covering a number of new governance processes (including remuneration policies and detailed risk assessments). In the event of a no-deal Brexit, it is possible that these requirements could be modified but we will have to wait and see what the Regulator’s consultation on its single code of practice says.

10. Buy-ins and outs: Trustees who have entered into (or are planning to enter into) bulk annuity policies should check how many members covered by their existing policies (or who they intend to cover under future policies) are resident in the EU.

They should also confirm with the insurer whether they consider the end of the transition period will affect if (and how) they can enter into buy-ins relating to overseas members and/or issue individual annuities to overseas members when the plan moves to buy-out.

Next steps

Whilst there are a number of things to think about, if you haven’t done anything yet, don’t panic. There is still time but it is important to progress things now. Identify which items set out above are or might be relevant to your plan and consider how to tackle them.

If you need any assistance with any Brexit related issues, any of the Eversheds Sutherland pensions team will be able to help. In addition, there is a host of other information to help you navigate the issues that might arise as a result of Brexit on our Brexit Hub which is a one-stop shop for all legal and regulatory requirements, not just pensions.