The departure of the UK from the EU: considerations for pension schemes

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Although dialogue around Brexit waned to a degree following the onset of the pandemic it was very much the topic of discussion in the run-up to the end of the transition period on 31 December 2020.

On 31 January 2020, some four and a half years following the June 2016 referendum, the UK withdrew from membership of the European Union (the EU) under the terms of three future relationship agreements governing trade and co-operation, security of classified information and nuclear co-operation. The passing of the European Union (Future Relationship) Act 2020 on 30 December 2020 allows the UK to give effect to these agreements from the end of the transition period.

Pension schemes will already have been planning for the UK's withdrawal. However, given the uncertainty over whether there would be a deal and the terms of any deal right up until a week before the deadline, quite how certain aspects would materialise was somewhat of an unknown. 

What are the central issues which trustees will need to consider?


The risks to investments over the coming months, what steps should be taken to deal with market reaction, the longer-term effects of the withdrawal, opportunities and ways of mitigating risk. Trustees have been reminded by the Pensions Regulator (the Regulator) to avoid making 'knee-jerk decisions' and not to concentrate too much on short-term market changes which should be considered as part of the overall investment strategy. 


The effect on the sponsoring employer's covenant and the impact on the scheme which will depend on the sector involved, the employer's exposure to the withdrawal and the impact of the deal and could, in certain cases, present particular challenges when combined with the effect of the pandemic. 

Scheme administration

The impact on payment of benefits across the EU border and the provision of services to the scheme. 
There are particular concerns regarding the closure of UK bank accounts for residents in the European Economic Area – our Insight article provides further detail. Trustees will need to liaise with the administrators to identify affected members and liaise with them to ensure benefits can continue to be paid. The Government has produced guidance on pensions and benefits for EEA and Swiss citizens in the UK and UK nationals in the EEA or Switzerland 

EU contingent assets

A review will be needed of any guarantees or other security that has been provided by an EU parent or group company and any funding arrangements that are subject to EU law including consideration of the applicable governing law and enforcement.

EU scheme employers

Legislation governing the framework for cross-border schemes which was in place before the transition period ceased to apply at the end of the transition period. Trustees and employers of cross-border scheme will need to determine if EEA employers can still contribute to the scheme and UK-based employers which contribute to an EEA based pension scheme will need to check compliance with UK requirements and if contributions can still be paid. 

The Regulator issued cross-border schemes: guidance in the event of a no-deal Brexit in October 2019. This was updated in December 2020 to explain that the Regulator will be updating the guidance in early 2021 regarding the management of cross-border aspects of schemes post-transition period. In the meantime, it refers to trustees periodically checking the guidance and with the relevant EU member state in which the scheme operates for further updates.

Thought will also need to be given to the implications from a PPF perspective of an EU employer insolvency; the EU insolvency of an employer may not automatically trigger a PPF assessment period with additional steps being required to trigger a 'qualifying insolvency event'. The PPF has confirmed that schemes with EU based scheme employers which fail can still enter the PPF, they would "simply be in the same position as non-EU overseas employers are at the moment".

Pensions law

As workplace pensions are largely domestic in nature, the UK's departure from the EU should not significantly affect the legislative basis of the operation and administration of pension schemes. 

There has been no wholescale amendment to pension legislation following the withdrawal and relevant technical amendments have been made to relevant legislation to allow for its continued operation. Broadly, retained EU law continues to have effect in the UK unless and until there is further amending legislation or the Court of Appeal or the Supreme Court depart from retained EU case law. 

The requirements of IORP II (the second European Pensions Directive) were transposed into UK law by January 2019 and impose new requirements on certain occupational pension schemes, the most significant of which relate to governance. It is this legislation which will be reflected in the Regulator's single code of practice, a consultation in respect of which is expected in the early part of this year. 

Scheme documentation

Scheme rules will need to be reviewed to ensure that references to EU legislation which will no longer apply can be amended as necessary and to check for any inadvertent consequences flowing from the withdrawal that need to be dealt with.

Data protection

The Government's guidance on using personal data explains that the agreement reached with the EU allows the UK full autonomy over its data protection rules as from 1 January 2021 with a bridging mechanism in place for up to six months which will permit personal data to move freely from the EU (and EEA) to the UK, until adequacy decisions have been adopted. The guidance and the ICO's statement recommends that, before and during the bridging period, businesses put in place alternative transfer mechanisms to guard against interruption to the movement of EU to UK personal data. For many organisations, the most relevant mechanism will be Standard Contractual Clauses.

The General Data Protection Regulation has been incorporated into UK legislation although the UK will be able to keep the framework under review. Trustees will need to ensure that relevant EEA data transfers are compliant with both UK and EU data protection regulations. The ICO has produced various pieces of guidance and resources to assist organisations deal with data protection following the UK's withdrawal.

Do you have any queries regarding the impact upon pension schemes following Brexit?

Trustees and employers have had numerous issues to contend with in the lead up to the UK's departure from the EU and the impact of the withdrawal is likely to continue to be felt for some time. They should continue to look out for further guidance from the Government and relevant regulators. We can also assist in navigating the various issues; please get in touch with your usual Gateley contact if you require any assistance or visit our pensions regulatory support page for more information on the services that we offer.

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