DB schemes with year-end valuations warned of Brexit clash

Defined benefit schemes with valuations set to take place on 31 March have been warned of the impact Brexit could have, as Brexit day - 29 March – is the last financial trading day for schemes that have valuation year-end dates.

Aon has warned that as the UK is set to leave the European Union on this date, that it could be an “atypical day” for financial markets. It predicts that sponsors and trustees at around 15 per cent of UK pension schemes have 31 March 2019 valuation dates, and therefore, need to discuss their options with each other due to the Brexit clash.

If no action is taken now, Aon has stated that this potentially atypical point could lead to more difficult valuation negotiations. Aon partner, Lynda Whitney, said: “There are plenty of levers that can be used within the legislative framework for valuations – but ultimately it’s a matter of sponsors and trustees having a grown-up conversation ahead of the end of March.

“If markets do react significantly on 29 March it will inevitably be to the benefit of one side or the other – to the company sponsor or to the trustees. Therefore, both sides should hold an ‘in principle’ conversation as soon as possible, which will allow them to agree to use levers they may have ruled out in the past.”

For example, Whitney said sponsors and trustees should consider whether to have a one-off adjustment in the level of prudence, consider a one-off change in outperformance in the recovery plan period, or formally take into account post-valuation experience, although she warned that this has other consequences.

“The aim here would be to avoid potential friction after 31 March – while nobody knows which side any market movements could favour. We all hope that whatever might happen on 29 March will cause the minimum of disruption to both the economy and to pension schemes too, but it’s best for schemes to build in some tolerance ahead of the event if they have an imminent valuation date.”

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