Brexit: Would a ‘leave’ vote disrupt the UK pensions landscape?

Leave vote illustrated by a Union Jack jigsaw piece removed from the EU flag

Financial planning in association with Scottish Widows bannerIf the public opts to leave the EU, pensions law could be affected but changes will take time to filter through, says legal expert

On 23 June, the campaigning will come to an end and Britain will go to the polls to decisively answer the question over its membership of the European Union.

While the ‘remain’ campaign has been keen to cite the political and economic uncertainties that could prevail should the public vote for ‘Brexit’, the ‘leave’ campaign has set out the benefits it believes would outweigh any such turmoil.

The severing of ties with EU lawmakers, however, could well alter the legal landscape – and among other headline worries (‘will the value of sterling fall,’ ‘will markets become unstable?’) are concerns around pension schemes.

So could existing provisions for better workplace and personal UK pensions be wiped out if the leave vote triumphs?

Under the new threshold, employees earning £200k will be limited to around 5 per cent as a contribution, whereas prior to this high earners could pay 20 per cent of their salary. Slashing this all-important business perk and removing a key business driver from an employee scheme will invariably have consequences for other workers.

“Much modern UK law has its roots in the EU and the position for pension schemes is no exception,” says Georgina Beechinor, senior associate at pensions law specialists Sackers.

“However, given the focus in recent years on improving standards for workplace and personal UK pension schemes, it seems unlikely that existing provisions would be stripped out purely because of their origins in EU law.

“The extent to which UK legislation might continue in its current form in the event of a ‘leave’ vote would depend on both the form of the relationship agreed between Britain and the EU, and the political appetite in the UK to dispense with or amend existing legislation.

“While some areas, including GMP equalisation and survivor benefits, could be targeted at an early stage, most changes would take longer to filter through.”

Employers whose employees are enrolled in defined contribution schemes should prepare appropriately for a ‘leave’ outcome, she adds: “Whilst DC scheme members are responsible for their investment choices, trustees and employers should, particularly in the event of a ‘leave’ vote, review investment options, including any default funds, to ensure these remain appropriate.

“Additional communications should also be considered to remind members of the importance of diversity in their investment choices.”

Regarding state pensions, she cautions: “At the moment, the state pension and healthcare rights of around two million UK expatriates living in EU countries are protected.

“Should Britain leave the EU, those benefits could be frozen, as is currently the case for British pensioners living in countries outside the EU where there is no reciprocal social security agreement under which state pensions are uprated.”

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