Uncertainty is the only certain thing about Brexit, says James Walsh, Policy Lead: Engagement and EU, PLSA
Drafting a viewpoint article about brexit some weeks before this magazine is published feels like an unfair challenge. by the time you read this, the situation will almost certainly have changed, probably several times – so the risk of being hopelessly out of date is very high.
At least that is the case for the politics, where the situation is fluid and fast-moving to say the least. Fortunately pension schemes’ concerns remain much more constant and the PLSA has some reliable information, drawn from a recent member survey, on what those are. So this article sticks to that safer ground by focussing on what we know about what pension schemes have told us.
We have been busy writing to ministers in recent days with a briefing on our survey results. The key point – and one that goes straight to the heart of the political debate – is that PLSA members overwhelmingly rate a ‘hard exit’ (where the UK leaves the EU on WTO terms) as significantly worse than a negotiated arrangement that maintains market access more or less as at present. Fifty-six per cent of respondents said it would be worse than a negotiated deal from a scheme perspective, and even more – 70% – said it would be worse from the employer’s point of view.
Obviously any short-term impact on the markets matters hugely
to pension schemes, and the PLSA is as keen as any other organisation to see the country avoid serious economic disruption around Brexit day. But – perhaps more so than some other sectors – our members are well placed to take the long-term view as well, and there is quite a contrast between these short-term and long-term perspectives. Forty-seven per cent of our survey respondents predicted a negative impact from Brexit over the next 12 months, while just 3% expected a positive boost. Over a 10-year horizon, however, the ‘pessimists’ fell to 27% and the ‘optimists’ rose to 11%.
Naturally it’s difficult for anyone to make predictions so far out, but I thought the contrast was of note. You can ask me in 2028 how things actually panned out!
One thing we do know is what schemes have done to prepare for Brexit. Of those that have taken specific Brexit-related actions, 65% have reviewed their asset allocation (41% have actually changed it) and 53% have commissioned extra advice from their professional advisers.
This aligns with the PLSA’s Brexit advice to all schemes, which is to ensure you have discussed Brexit-related risks in your trustee board and – crucially – with your sponsoring employer. Schemes with sponsors that trade internationally, or that rely on non-UK skills and labour, will inevitably be more exposed to any disruption.
The impact Brexit might have on how pension schemes are regulated depends very much on the shape of the future UK-EU relationship, which is so uncertain at the moment. The PLSA has been reminding ministers of our key point – that any deal on continuing UK compliance with EU Single Market financial services legislation (at the time of writing the UK is proposing
an ‘equivalence’-based arrangement) should not bind us into future editions of the IORP Directive, as this could expose our defined benefit schemes to a complex and costly EU solvency regime for pensions.
Although the media focus at the moment is on what happens between now and 29 March, the detail of the future UK-EU relationship will only be resolved in the months – perhaps years – after that date. This means the negotiations over matters that affect pension schemes are likely to run and run. I can see many more Viewpoint updates ahead...