Skip to content

Could Brexit affect your pension scheme?

The staff at PBC were recently visited by Darren Toms of Clumber Consultancy to provide a briefing on the latest position on how auto-enrolment and other matters had affected how the pension and insolvency “worlds” interact.

During the briefing, Mr Toms raised the issue of the effects of Brexit on valuations of pension scheme liabilities which is summarised below.

As far as Defined Benefit (“DB”) pension schemes go, the key area affected by Brexit was the way in which pension liabilities are measured by reference to gilt yields. Gilt yields fell and have continued to fall since the EU referendum vote which saw the combined liabilities of UK pension schemes rise to an all-time high of £2.3 trillion on 1 July 2016. As a consequence, DB pension scheme deficits in the UK rose from £830 billion before the referendum, to a staggering £935 billion (a 12.7% increase) on 1 July 2016 alone (Source: Hymans Robertson, an independent pensions consultancy firm).

The problem is heightened for any pension schemes currently reaching their triennial anniversary to produce a valuation. If for example the scheme year-end date is 31 August 2016 then the Scheme Actuary has 12 months to produce a valuation at that date, which will then lead to difficult negotiations between Trustees and Employers throughout 2017.  Given that the pension scheme deficit has to be illustrated in the profit or loss account this could lead to a number of company failures or difficult discussions around mergers and acquisitions.

Trustees and Employers will need to brace themselves for such negotiations and ensure that there are no conflicts of interest present around the Trustee table when doing so. There are two key questions that Trustees and Employers need to ask themselves:

  • Is the investment strategy for the pension scheme still appropriate considering the liabilities and longevity of the scheme?
  • Is the sponsoring employer still able to support the scheme and the level of deficit recovery plan contributions that is likely to be laid out in front of them?

One thing that is for certain is that both the Pension Protection Fund and the Pensions Regulator won’t accept Trustees and Employers seeing the Pension Protection Fund as an easy get out for Employers. In addition, the Pensions Regulator will look to use their anti-avoidance powers more and more where sponsoring employers look to shirk their responsibility to their pension scheme. Interesting times ahead!

Should you feel this issue affects your business, phone PBC on 01604 212150 for a free consultation.

Further information on Clumber Consultancy can be found at http://www.clumberconsultancy.co.uk/