So, the task of explaining what it means in the world of pensions is as beset with these challenges as elsewhere, but has one surprising advantage. The problem with pensions in the international arena has always been that they operate in a wide variety of different ways, which does not translate easily across borders. This has caused significant challenges, not only with international pension arrangements but with any attempts to regulate pensions internationally.
This has meant that, unlike areas such as banking and insurance, EU legislation on pensions has been quite limited. A serious attempt to pass a Pension Fund Directive in 1991 foundered, and it was not until 2003 that the IORPs Directive was passed, IORPs standing for “Institutions for Occupational Retirement Provision”, itself an acknowledgement that it could not apply to pension arrangements that are not separately funded from the employing entity, such as those “direct promise” arrangements in Germany and Austria.
In short, this means that pensions harmonisation across Europe has been limited and that only a smallish subset of the very many of the plethora of different rules and regulations that apply to pensions in the UK are European in root. Even those that are, such as the Scheme Funding regime under the Pensions Act 2004, which followed the IORPs Directive and directs how defined benefit pensions are valued and any contribution levels agreed, seem unlikely to be removed simply because the directive would no longer apply.
From a legal point of view, it does seem that the direct effect of Britain's EU exit on the pensions world will be pretty limited, particularly compared to other sectors. There is, of course, an opportunity to change interpretation, and there may well be laws repealed or changed that would affect the operation of pensions, but the core systems, such as the tax treatment, the automatic enrolment regime and the regulatory system will not be forced or even particularly opened to new opportunities to change following a UK exit.
Does this, then, mean that the pensions industry would remain unaffected? Sadly, no. Even pension lawyers have to accept that not everything is about the legal position, and pension schemes are large investment vehicles which are affected by markets, not just in equities but in other investments, including particularly government bonds. As such, the challenges caused by uncertainty in the markets have a very significant effect on pension schemes.
In addition, the investment risk that trustees of defined benefit pension schemes are able to take is closely linked to the financial viability of the scheme employer. Given the effect of Britain's EU exit, good or bad, varies between businesses depending on their supply chains and markets, pension schemes are having to look much more closely at the employer’s forecasts and the effects of these changes.
So, the pensions industry is just as interested in, and affected by, a UK exit as the rest of the country. However, the legal challenges are much more limited than in some areas and the present focus for the industry is really on the effects on financial and other investment markets, and on employers who contribute to, and in some cases underwrite, the pension schemes that provide for our old age.
Rosalind Connor is a partner at ARC Pensions Law