UK: Brexit And Pensions - What Trustees And Employers Need To Know About The UK's Vote To Leave The European Union And What You Should Do Next

On Thursday 23 June, a majority of voters agreed that the UK should leave the European Union (EU). This result was one of the few solid facts to emerge from the referendum. The UK now faces an extended period of instability and uncertainty as politicians, investors and businesses enter a new geopolitical landscape.

What does the vote mean for pensions in the UK? What should trustees and employers be thinking about, discussing or even doing? In this Insight, we'll be looking at the impact of the referendum on:

  • the legal framework for pensions;
  • pension scheme investments;
  • scheme funding; and
  • employer or sponsor covenant strength.

We'll then consider practical and commercial next steps and actions for trustees and employers to consider.

The impact of the Brexit vote in four key points

No change to the current legal framework for pensions

There was no immediate change to the legal framework governing pensions following the vote. It is unlikely there will be a material change in the short to medium term. Any longer term impact will depend on how the UK exits the EU.

Scheme investments - increased risk and volatility

Pension schemes face increased volatility in the immediate and short-term. Certain investments will have a higher level of risk than before the vote.

Negative impact on scheme funding

Scheme funding has already been negatively impacted. There is likely to be further negative impact on scheme funding as the Bank of England and HM Treasury take steps to stabilise the UK's economy.

Potential impact on employer covenant strength

Trustees should already be monitoring employer covenant strength and should be prepared to act to safeguard the scheme's financial position if necessary. Certain types of employer and sectors are potentially more vulnerable to market volatility and the UK's exit from the EU and should therefore be monitored more closely.

Next steps and actions in four key points

Talk to professional advisers

Trustees and employers should engage with their professional advisers as an immediate 'next step' and use this to gauge whether more urgent action is required.

Dialogue between trustees and employers

Trustees may also want to engage with employers to better understand what steps they are taking in respect of Brexit. Trustees and employers should discuss whether it would be appropriate and sensible to issue a communication to members.

Integrated risk management

Trustees can use Integrated Risk Management (IRM) principles to help identify, discuss, prioritise and manage risks.

Review investment strategies and options

Trustees and their advisers should consider the suitability of investment strategies, investment options (for defined contribution members) and the terms of current investments (i.e. swaps and derivatives).

Pensions legal framework and Brexit

Did the vote change the legal framework for UK pensions?

The legal framework for pensions in the UK was exactly the same on Friday 24 June as it had been the day before. The vote seems to have changed everything in politics, but it changes nothing in law. The referendum itself was non-binding and did not, in and of itself, trigger the UK's exit from the EU.

That means that all of the primary and secondary legislation, case law (including European case law) and regulatory guidance remains in force and unchanged.

This was reiterated last week by the Financial Conduct Authority confirming that firms must continue to comply with EU regulations and that it would continue to implement future regulatory change.

Why is there so much uncertainty and how will this impact on pensions in the UK?

There are two main reasons why things are so uncertain:

  1. the first is that we do not know how, or even if, we will leave the European Union;
  2. the second is that we do not know when we will leave or even when we'll have a clearer view of the process.

If the UK government negotiates to leave the EU but retains a high level of access to the single market, the legal framework governing UK pensions may not see a material change. The UK would still be required to implement most, if not all, of the EU's legislation covering pensions and employment.

A more complete break with the EU may result in the UK developing its pensions legislation and regulation in a very different way to the remaining 27 member states of the EU.

In such circumstances, a more radical UK government could legislate to fundamentally change the established legal framework for pensions.

The extent to which current or new EU pensions legislation will have to be implemented is unclear. Of particular interest to the pensions industry are unresolved issues on:

  • the General Data Protection Regulation, which will go into direct effect in EU member states on 25 May 2018;
  • IORP II, which has recently been adopted as law by the European Council and the European Parliament. Member states now have two years to implement IORP II into their national legislation.

In addition, questions have been raised about whether schemes will need to equalise GMPs (guaranteed minimum pensions) and what VAT provisions will apply after the UK leaves the EU.

Until we have a clearer picture of the future relationship between the UK and the EU, it is impossible to provide legal certainty on these issues.

Pension schemes and risk

Trustees and their advisers will have to consider the impact of the vote and future exit negotiations on the scheme's ability to fund accrued liabilities. In particular, trustees will need to think about:

  • scheme investments;
  • scheme funding levels; and
  • the strength of the employer / sponsor covenant.

Note: We are legal advisers, not actuaries, investment consultants or covenant specialists.  From a governance and legal perspective, these are the steps and thought processes which trustees ought to be going through over the coming weeks and months.

Pension scheme investments and Brexit

Markets have reacted to the Brexit vote in very different ways. Trustees and their investment advisers may have to get used to uncertainty being one of the only things that we are certain of.

Trustees will have set their investment strategies and outlined their tolerance for risk before the vote. The result of the vote represents a material change in the investment and risk landscape. Trustees will need to consider whether:

  • their scheme's investment strategy is still appropriate in light of developments. Have trustees discussed their with their investment advisers?; and
  • their scheme's investment strategy is still meeting their objectives for risk tolerance. If not, do the trustees need to reconsider either their risk tolerance or their investment strategy?

More specific issues relating to investments include:

  • Counterparty credit rating downgrades which could trigger termination rights;
  • The value of collateral posted under derivatives and swaps reducing in value resulting in margin calls (from both sides); and
  • Whether the range of defined contribution investment options is still appropriate and whether they are still labelled and described correctly.

Pension Scheme funding and Brexit

Since the vote, the UK's credit rating has suffered further reductions. Most notably, Standard & Poor became the last of the three major rating agencies to remove the UK's Triple-A rating.

This has, somewhat counterintuitively, reduced UK gilt yields and increased bond yields. Despite the reduction in the UK's credit rating, its sovereign debt is still seen as a safer haven than other investments. Last week, two British sovereign bonds traded in negative territory for the first time.

This has a direct impact on scheme funding levels. According to Hymans Robertson, aggregate deficits had risen to £935 billion last week.

Further impacts on scheme funding levels will depend on what action the Bank of England and Government take.

The markets are now braced for a further fall in interest rates and the potential for another round of quantative easing. There could also be further downgrades in the UK's rating.

There could also be an increase in transfer requests as members seek to take advantage of high transfer value levels.

Each of these will have a material impact on pension scheme funding with falling bond and gilt yields and unfavourable scheme-funding provisions.

Employer covenant strength and Brexit

The Brexit vote is an additional consideration for trustees and will be factored into employer-specific, sector and macro-economic forecasts. It does not, in and of itself, necessarily require perceptive action from trustees.

Some of the factors which trustees can consider in this respect include whether the employer / sponsor is:

  • exposed to fluctuations in listed markets and commodities?
  • exposed to volatility and a longer-term weakening in Sterling?
  • based in or outside of the UK?
  • moving employees, assets, tax residency, stock market listings or headquarters out of the UK?
  • operating in a sector or markets that is commonly believed to be vulnerable or exposed to Brexit? Commentators in the financial press have identified these sectors as ones to be aware of:
    1. banking and insurance
    2. other financial and professional services;
    3. manufacturing, especially with large European exports;
    4. chemicals and pharmaceuticals; and
    5. construction (especially homebuilders).

Pensions and Brexit - next steps

So, when faced with turbulent markets and an uncertain future, what should trustees and employers do? What are the practical and sensible steps that those involved with UK pension schemes should consider?

Integrated risk management

Fortunately, there is already a mechanism in place by which trustees can engage with risk in the form of integrated risk management (IRM). The Pensions Regulator has made this a big focus over the past few months since it published guidance on it in December 2015. This is a real test for the methodology.

IRM asks trustees to focus on risks in relation to:

  • investment;
  • funding; and
  • employer covenant strength.

It is important to note that IRM is not a panacea or a solution in and of itself. It is a set of tools that enables trustees to identify risks and make better decisions in relation to those risks.

As part of IRM, this should be a standing item on trustee agendas. Brexit doesn't need to be a separate heading - it can be considered as part of the overarching risks that I've just mentioned.

Professional advisers

Because of the current level of uncertainty, we are not suggesting that all trustees need to commission an urgent covenant assessment, revise their statement of investment principles or attempt to negotiate on increased funding.

It would, however, be very sensible for trustees to engage with their professional advisers to ensure that:

those professional advisers are monitoring developments and are committed to providing the trustees with information as needed;

channels are opened to enable the trustees to take prompt action if this is required.

Employer and trustee engagement

The Pensions Regulator is keen that trustees and employees discuss issues early and often. This does not mean that the trustees need to take precipitative or provocative action such as questioning covenant strength.

It does, however, serve to remind employers that the pension scheme is a key consideration in relation to their planning for Brexit.

Trustees should ensure that they have sufficient information from the employers to enable them and their professional advisers to be able to monitor covenant risk.

Suitability of investment strategies and options

As part of their engagement with investment advisers, trustees should consider whether their investment strategies are still appropriate. Trustees will have adopted a certain tolerance for risk when deciding their investment strategy. Does the investment strategy still reflect that risk tolerance in light of current and extended market volatility?

In addition, trustees may need to consider the suitability of the range of investment options that are available for defined contribution members (including those making additional voluntary contributions). Providers should be able to confirm whether the fund selection remains appropriate for various risk thresholds or if any changes need to be made.

Due diligence on existing investments and contracts

Trustees with derivatives or swaps in place may want to ask their legal advisers to confirm whether there is any counterparty risk and ratings downgrade triggers which could become relevant in the short and medium term?

They should also ask their investment managers whether any collateral posted under such contracts has reduced in value because of falls in currency or equity prices such that a call may be made from counterparties.

Does the scheme have sufficient liquidity in its current investment strategy to deal with any such issues?

In the longer term, trustees may need to consider issues around financial services passporting for any non-UK banks and financial service providers.


Finally, we've had reports of a spike in queries from members who are concerned about the safety of their pension savings. Trustees may want to consider issuing a statement to members in order to reassure them that they are taking appropriate steps, are monitoring the situation and reminding them that the fundamental system of safeguards and protections remain in place.

Trustees may want to discuss this with the employer to ensure that messages to employees and members are consistent.

Pensions and Brexit - webinar and transcript

All of the issues raised in this alert are considered in more detail in our Brexit webinar and transcript. You can download the webinar to watch in your own time or read the transcript of what we covered.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
7 Nov 2019, Seminar, Birmingham, UK

Providing content specifically tailored to the needs of GCs and Heads of Legal working in government organisations and their affiliates.

14 Nov 2019, Seminar, London, UK

Providing content specifically tailored to the needs of GCs and Heads of Legal working in government organisations and their affiliates.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions