The mounting uncertainty of Brexit has gathered a great deal of interest from European and North American pension providers and benefit councils, therefore when I addressed the annual conference of the Cross-Border Benefit Alliance in Brussels this week, most of the questions focused on how prepared the UK pensions industry is to face the impact of Brexit's consequences. Below are the three main questions that were of most interest.
Where are we with Brexit, and how do we come to be there?
Immediately after losing the referendum Prime Minister Cameron resigned. Theresa May won the resulting leadership battle, though she herself had supported remain. She faced the Europhobe tendency in the Conservative party and as a sop to them triggered the EU Treaty Article 50 before she had thought through the implications. May then called a snap general election. She lost her Parliamentary majority altogether, but she remains in power, at least for the time being, only with the support of Northern Ireland's Democratic Unionist Party.
There are now three main options left for the UK and the European Union to consider: (1) Try and get backing for the current proposed deal; (2) Crash out without a deal, i.e. no deal; or (3) Review the entire project to leave: seek to negotiate either a cancellation or a deferral of Article 50: either with or without a further referendum. But, none of these three options seems likely to obtain a majority in the House of Commons
Where does that leave the UK pensions industry?
There is a general consensus that the state of the UK economy is the biggest concern as an influencing factor on pensions. The Confederation of British Industry opined recently that a deal of any sort is “significantly better than stepping off the cliff in March” 2019.
In a survey conducted a month ago, two out of three pension schemes said that they had not yet done anything to plan their options for Brexit. Trustees, however, we believe, should be familiar with applying the principles of integrated risk management, as the questions that Brexit provokes are the same as for any others of the threats or hazards which are listed in the National Risk Register. In particular: What are you doing to mitigate if you can't stop it?
What about regulation in pensions?
Behind the scenes, quiet but effective work has been taking place on pension scheme alignment, whatever type of Brexit is followed. UK officials were closely involved in negotiating the EU's original pensions directive, “IORP II”, which will see all member states incorporate the directive into national law by 13 January 2019. The UK will still be a member of the EU at this time and has committed to implement the directive into UK law. There is agreement on “an effective system of governance, including controls”. UK officials think that the governance elements of IORP II are aligned with the expectations set out in the UK Pensions Regulator's own “21C Trusteeship” programme.
Overall, then, the political bunfight continues. Pension schemes have started to address the issues with increasing seriousness. Civil servants are well in hand on regulation. But, is the glass half full or half empty? It could go either way. We must be vigilant.