The end of the Brexit implementation period: Implications for pensions

At 11pm on December 31, 2020 the Brexit implementation period ended and the last-minute trade deal agreed by UK and EU negotiators took effect through the EU-UK Trade and Cooperation Agreement (TCA).  What does this mean for UK pensions and what steps should employers and trustees be taking?

What is the impact on UK pensions law?

UK pensions law remains basically unchanged following the end of the implementation period and the TCA coming into force.  It is not expected to change significantly in the short term.

For example, any trustees or employers hoping this may spell the end to the complexities of GMP equalisation will be disappointed.  The UK courts have already decided that pensions must be equalised for the effects of GMPs and Brexit does not change this.

However, there may be some divergence from EU law over time.  For one thing, the UK will no longer be obliged to comply with new EU legislation or regulations.  In addition, any future decisions by the CJEU will not be binding on the UK courts.

What steps should employers and trustees be taking?

To ensure the smooth running of schemes, key action points include: 

• Employer covenant. Now that the outcome of the negotiations between the UK and the EU is known, trustees should discuss with their advisers the likely impact of the end of the implementation period and the TCA on their employer’s business and covenant.  If they have concerns, they should start a dialogue with the employer about future contribution payments and any expected changes to these. The relative certainty achieved by agreeing a trade deal may mean less volatile markets than in a no-deal Brexit scenario.  Nevertheless, trustees of both DB and DC schemes should monitor developments.  DB trustees should consider how to mitigate risks to scheme investments and check with their investment advisers that the scheme’s investment strategy remains suitable. 
• Guarantees from EU companies. Trustees should review any guarantees that have been made in support of their schemes by EU companies to check there are no enforcement issues and consider whether the strength of the guarantee or other security has been affected by recent events. 
• Paying benefits to overseas members. Some banks have closed the UK bank accounts of members living in certain European countries, in spite of the TCA.  Trustees should liaise with their administrators and affected members to ensure their pensions can continue to be paid.  
• Member communications. Trustees should be prepared to answer questions from members (particularly those resident in the EU) about how the end of the implementation period will impact their pension savings.
• Overseas schemes or employers. Trustees of UK-based schemes need to check whether EEA-based employers can continue to pay contributions. This will depend on the rules of the relevant EEA member state.  UK-based employers using a scheme based in the EEA need to check it complies with UK rules and that the host EEA member state allows them to continue paying contributions.  Employers should also consider the tax implications of paying contributions into the scheme and, if it is used for auto-enrolment, whether that can continue.
• Data protection. For up to 6 months following the end of the implementation period, personal data can continue to flow freely between the UK and the EU (and EEA).  However, the UK information commissioner recommends putting in place alternative transfer mechanisms “as a sensible precaution”, to avoid any interruption to the flow of data to the UK.  This is while we wait for the EU’s verdict on whether UK data protections are adequate.