Leaving the European Union: The impact on occupational pension schemes

Transcription

1 Leaving the Eurpean Unin: The impact n ccupatinal pensin schemes Friday 24 June 2016 The UK has vted in favur f leaving the Eurpean Unin. Fr cmpanies and trustees wh run ccupatinal pensin schemes, this raises the questin f hw the UK s departure frm the EU wuld affect their legal bligatins. T cnsider this, we need t separate the perids befre and after leaving the EU. Psitin while in the EU The Lisbn Treaty enables a cuntry which has decided t leave the EU t serve a withdrawal ntice n the Eurpean Cuncil. A cuntry which des this remains a full member state until the cnclusin f what is widely described as a tw-year withdrawal prcess (althugh the actual timescale is impssible t predict). The leaving cuntry has the intervening perid in which t agree the terms f its withdrawal with the ther member states. The withdrawing cuntry has all the rights and duties f a full member state until the end f the withdrawal prcess. This includes the impact nt nly f existing EU laws, but als f new nes (whether in the frm f directives, regulatins, r decisins f the Eurpean Curt) arising during the perid between the withdrawal ntice and the date f exit. Psitin after leaving the EU The main principle is that a cuntry is nt subject t EU law if it is utside the EU. Hwever, the reality fllwing a UK departure may prve t be less straightfrward: A great deal f EU law has been written int UK legislatin. This will survive as UK law, unless and until it is repealed r amended by the UK Parliament. The impact f this UK legislatin may cntinue t be shaped by past and future decisins f the Eurpean Curt f Justice (the ECJ ) fr years t cme: Past ECJ decisins: Until nw, the UK curts have deferred t the ECJ when interpreting this UK legislatin. Whether UK judges culd re-interpret UK law after the link t EU law is brken remains t be seen but we wuld nt expect them t d s lightly. Future ECJ decisins: Future ECJ decisins t may have sme influence. UK judges, even if they find themselves n lnger bund t fllw the ECJ s interpretatins f EU law, may be wary f adpting a cntrary line withut a cmpelling reasn. 1

2 Sme requirements f EU law are directly enfrceable in the member states, and s apply in the UK withut having been written int UK law. These requirements wuld simply fall away n leaving the EU. Hwever, the UK Gvernment might want sme r all f these still t apply (at least initially, if nly fr the sake f cntinuity). This culd be achieved by: enacting UK legislatin t write these requirements int UK law; r prviding in the withdrawal agreement fr these requirements t cntinue t apply directly t the UK, as part f the UK s negtiated cntinuing future relatinship with the EU. If the UK were t remain in the single market, then this wuld be likely t invlve the UK remaining subject t much f the EU law that wuld have applied t it as a cntinuing EU member state. Pensins issues The fllwing pages lk at EU law requirements f specific relevance t ccupatinal pensin schemes, dividing them int thse which have been written int UK law (and s will cntinue t apply fr as lng as they remain in frce) and thse which have nt. The ecnmic and plitical implicatins f leaving the EU may well eclipse the regulatry cnsequences that we have utlined here. The financial impact fr cmpanies and n investment cnditins may raise issues fr trustees when carrying ut their nging funding and investment rles. The particular circumstances will inevitably vary frm scheme t scheme, as will the steps that trustees can r ught t take. Yur usual Linklaters pensins cntact will be happy t advise further. 2

3 UK legislatin enacted t implement EU law This wuld remain UK law after leaving the EU, unless and until repealed by Parliament. EU issues nt written int UK legislatin These wuld fall away upn the UK leaving the EU, subject any specific arrangements entered int t the cntrary. Equality and prtectin frm discriminatin The Equality Act 2010 implements the EU law prtectins against discriminatin n grunds f such matters as sex, age and sexual rientatin. These prtectins extend t pensin rights. The prtectins relating t sex and sexual rientatin are nw generally regarded as uncntrversial, and there is n expectatin that Parliament wuld seek t repeal them in the freseeable future. The age discriminatin prtectins are less straightfrward. These are still cnsidered by many t be anmalus in the cntext f pensin schemes (even with the statutry exceptins that are available), and they can give rise t difficulties. Cnceivably, nce ut f the EU, a future Parliament might try t sften their impact; hwever, mst schemes have learnt t live with these prtectins and a UK Gvernment is unlikely t see this as a pririty. There are areas where the ECJ culd at a future date rule that UK legislatin des nt g as far as EU law requires. Examples f this are: whether schemes must take int accunt the different guaranteed minimum pensins payable t men and wmen, in determining whether they meet the equal pay fr equal wrk requirement; whether transfer values must be based n unisex actuarial factrs; and whether same-sex survivrs pensins must be based n the whle f the deceased s service (and nt just service frm 5 December 2005 r 6 April 1988 fr cntracted-ut benefits as UK law currently permits). Each f these wuld give rise t ptential cst implicatins fr schemes (althugh sme mre than thers). Emplyment prtectin n business transfers The Transfer f Undertakings (Prtectin f Emplyment) Regulatins 2006 ( TUPE ) implement the EU Acquired Rights Directive. TUPE mainly applies when there is a business transfer. Its effect is t transfer wrkers emplyment cntracts frm ne emplyer t anther. Hwever, the rights transferred d nt include ld age, invalidity and survivrs benefits under ccupatinal pensin schemes. This wrding can give rise t prblems especially when it means that certain pensin rights under a scheme d transfer, but thers d nt. Leaving the EU wuld allw Parliament t ratinalise these prtectins, but any significant weakening f them culd be seen as cntrversial. This is anther area where future ECJ decisins culd add t the bligatins that TUPE is currently thught t impse. An example f where this has already happened was in the Beckmann case. In Beckmann, the UK curt referred the questin f whether certain early retirement payments were ld age benefits, under the Acquired Rights Directive, t the ECJ. The ECJ decided they were nt, and s the liability was transferred t the new emplyer. The UK curt applied TUPE accrdingly. Whether leaving the EU wuld enable the UK curts t revisit such interpretatins and whether they wuld wish t d s remains t be seen. 3

4 UK legislatin enacted t implement EU law This wuld remain UK law after leaving the EU, unless and until repealed by Parliament. EU issues nt written int UK legislatin These wuld fall away upn the UK leaving the EU, subject any specific arrangements entered int t the cntrary. Funding and investment The funding and investment regimes intrduced by the Pensins Act 2004 include prvisins implementing the 2003 EU Directive n the activities and supervisin f institutins fr ccupatinal retirement prvisin ( IORP ). Funding The EU-based parts f the UK funding legislatin include the principle that schemes have sufficient funds, the frequency f scheme valuatins, and the verarching theme f prudence. Even were the UK t leave the EU, Parliament wuld prbably keep these parts intact fr the freseeable future as they are integral t the verall UK statutry apprach t scheme funding. Crss-brder schemes (cvering bth the UK and anther EU state) raise different issues. Even if Parliament were t relax the EU-based funding requirements that are impsed n these schemes, this wuld have n impact if the ther EU states crss-brder requirements still extended t the UK. Investment The EU-based parts f the UK investment legislatin include elements that are nt central t the verall UK framewrk. The restrictin n brrwing and the emphasis n investing in regulated markets are examples f this. Als, the requirement t invest nly members (and nt the emplyer s) interests des nt sit well with established UK trust law. Fllwing a UK exit frm the EU, amending legislatin culd be passed t irn ut sme f these pints. Hwever, with all the ther cnsequences f leaving the EU, that might nt happen fr sme time. Funding and investment cver a wide area, where the prspect f cntinued EU membership inevitably leaves pen the pssibility fr future change. Fr example: A revised draft directive t replace IORP ( IORP II ) is currently under discussin. On current prjectins, this is nt expected t be finalised sner than twards the end f this year, with the member states then having 24 mnths in which t implement it int their natinal law. The current draft is cncerned with gvernance issues rather than direct funding bligatins. The Eurpean Insurance and Occupatinal Pensins Authrity ( EIOPA ) recently decided against the intrductin f a new EU-wide funding regime. This came as a relief t many emplyers and thers invlved in the peratin f defined benefit schemes; there had been cncerns that EIOPA s cnclusins might lead t a significant tightening f the existing funding requirements quite pssibly leading t mre scheme clsures. Clearly that risk has receded, but the pint still illustrates that the impact f leaving the EU relates nt nly t existing EU laws but als t EU laws that might be intrduced in the future. Questins are smetimes raised as t whether existing UK law ges as far as EU law requires. Fr example, the ECJ s 2013 decisin in the Irish Waterfrd Crystal case raised cncerns as t whether Pensin Prtectin Fund cmpensatin levels were sufficient t meet the UK s EU Directive bligatins t prtect emplyees f inslvent emplyers. 4

5 UK legislatin enacted t implement EU law This wuld remain UK law after leaving the EU, unless and until repealed by Parliament. EU issues nt written int UK legislatin These wuld fall away upn the UK leaving the EU, subject any specific arrangements entered int t the cntrary. Data prtectin The Data Prtectin Act 1998 implements the 1995 Data Prtectin Directive. In this instance, the UK Parliament wuld prbably be mre likely t tighten the current legislatin fllwing a UK withdrawal than t relax it. This is because, by leaving the EU, the UK wuld als be leaving the EEA. (The UK culd perhaps try t stay in the EEA by applying fr membership f the Eurpean Free Trade Assciatin, but that wuld nt be straightfrward.) By leaving the EEA, the UK wuld ptentially be caught by the EU restrictins n data transfers frm the EU t nn-eea cuntries. These restrictins wuld nt apply, hwever, if the UK culd satisfy the EU Cmmissin that its data prtectin laws prvided adequate safeguards. A recent ECJ decisin 1 raises sme dubts as t whether the UK wuld currently be able t meet this test. There is still sme uncertainty in this area, but the UK might nly be able t surmunt this hurdle by implementing the General Data Prtectin Regulatin (see right-hand clumn). This wuld be a significant tightening f the UK s current data prtectin requirements, utweighing any relaxatins t the Data Prtectin Act 1995 which might be made pssible by leaving the EU. This is therefre an area where the impact f the UK s leaving the EU is especially hard t predict nt just fr pensin schemes, but generally. If the law des becme mre nerus, thse pensin schemes where persnal data is passed acrss natinal brders (because f the lcatins f its emplyers r service prviders) will be the nes that feel it the mst. The General Data Prtectin Regulatin ( GDPR ) This is expected t take effect in abut tw years time, and is mre nerus than the current requirements. Unlike an EU Directive, the GDPR will becme law in all member states withut the need fr natinal legislatin. The UK might well nt leave the EU until after the GDPR has started t apply t it in this way. Even after leaving the EU: the GDPR wuld still apply (thrugh its cntinuing applicatin t the remaining member states) t UK transactins with EU citizens; and the UK may find itself with little alternative but t implement the GDPR int UK law (fr the reasns utlined in the left-hand clumn). Transfers f data t the US There are separate EU develpments currently in prgress 1 fllwing a recent ECJ decisin cncerning the legality f data transfers frm EU states t the US. This is causing sme uncertainty until the psitin is reslved. Arguably, leaving the EU might remve this issue s far as data transfers frm the UK t the US are cncerned (as the UK wuld n lnger be an EU state). Hwever, this des largely depend n whether the UK ends up implementing the GDPR (see abve) particularly if it des s n terms that extend the GDPR prtectins t UK-t-US transfers. This is nt primarily a pensins prblem, but it culd be relevant t schemes where persnal data is transferred t a US grup cmpany r t a service prvider perating in the US

6 Value added tax The impsitin f VAT is an EU law requirement. Hwever, fr virtually all f the past 25 years, VAT has been charged in the UK at mre than the minimum standard rate required by EU law (and, even befre VAT was intrduced, the UK impsed a frm f cnsumptin tax). It is ne f the UK Gvernment s three largest surces f tax revenue. Cnsequently, there is n expectatin in the shrt term f VAT being reduced r ablished upn the UK leaving the EU. It might be that, ver time, VAT culd be verhauled in ways that EU law wuld nt allw (r even replaced by a different tax), but future changes in fiscal plicy are especially hard t predict. An area f specific cncern in relatin t pensin schemes cncerns the ability f emplyers t recver VAT n pensin csts. This is presently subject t sme uncertainty 2 but n current timescales HMRC is expected t clarify the psitin befre the end f this year (and s well befre any UK departure frm the EU). This issue has arisen frm an ECJ decisin (in the PPG Hldings case) allwing emplyers t recver VAT n investment csts, which until then HMRC had nt permitted. It is an example therefre f HMRC plicy being cnstrained by EU law which wuld cease t be the case fllwing the UK s withdrawal. There are likely t be further develpments ver the days and weeks ahead. In the meantime, as always, yur usual Linklaters cntact will be happy t assist with any questins yu may have