The Pensions Regulator has used the outcome of the UK’s vote on European Union membership to reiterate its desire for trustees and employers to engage openly and honestly in a constructive manner on matters of importance to their pension schemes.

Business as usual

The Regulator has stressed that from their perspective it is still very much “business as usual” and that all UK and EU pensions law applies in the same way as it did prior to the vote.  The Regulator will continue to engage with European institutions such as the European Insurance and Occupational Pensions Authority pending clarification of the nature of the UK’s future relationship with the EU.

Employer covenant

Perhaps the main concern emphasised by the Regulator was that of employer covenant in relation to defined benefit schemes.  Specifically, trustees should seek to establish what impact, if any, the Brexit vote has had and will have in future on the ability of their sponsoring employer to support their scheme.

The following factors should be considered:

  • currency cost base;
  • reliance on imports or exports – particularly to the EU;
  • plans for investment (and any changes in this) including whether these are reliant on funding from overseas; and
  • the impact of changes in the strength of sterling and interest rates.

The Regulator has identified a potential opportunity for increased scheme funding to which trustees should be alive in circumstances where deficit repair contributions had been constrained to allow for investment in sustainable growth of the sponsor: If such investment is put on hold by the company owing to marked uncertainty, trustees should ensure that these funds continue to be used to strengthen the covenant to the scheme (perhaps by increased deficit repair contributions) rather than being used for other purposes like the payment of dividends.

Investment strategy

Despite current market volatility, the Regulator has warned trustees against knee-jerk investment decisions based on the referendum outcome, encouraging them again to take a long-term view of expected risk and returns, and how this will impact both attitude to risk and funding strategy.  Emphasis has been placed on the importance of the timing of any investment switch.

The following factors should be considered:

  • interest rate and inflation risks;
  • concentration of investments;
  • currency exposures;
  • managing liquidity; and
  • counterparty risks.

The Regulator has identified that members might be concerned about the impact of Brexit on their pension savings and has encouraged trustees to ensure that any communications sent out on the subject should be written clearly, in plain English.

Watch this space…

The Regulator has stated that it will continue to monitor the markets and other economic developments and will provide more guidance to trustees of both defined benefit and defined contribution schemes as necessary.  To read the Regulator’s statement in full please click here:

This post was contributed by Stuart Evans. For more information, email

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.