Brexit and pensions – an update
Following months of negotiations, on 24 December 2020, the UK and the European Union (the “EU”) reached an agreement on a new partnership. The EU-UK Trade and Co-operation Agreement (the “Agreement”) sets out the rules that apply between the UK and the EU as of 1 January 2021.
The EU member states approved the Agreement on 29 December 2020 and in the UK, Parliament’s approval followed on 31 December 2020. The period of transition, during which most EU law continued to apply to the UK (the “Transition Period”), officially ended on 31 December 2020. On 1 January 2021, provisional application of the Agreement took effect and the new rules entered into force.
Pension scheme trustees should be aware of the following issues.
The Agreement provides for transfers of personal data between the UK and the EU to continue for a further transitional period (of up to six months) while an “adequacy” decision is agreed (the “Data Protection Transition Period”). This is expected to be obtained provided that no changes are made to the UK’s data protection legislation without the agreement of the EU. The UK has, on a transitional basis, deemed the EU to be adequate to allow for data flows from the UK.
If the Data Protection Transition Period ends before the EU makes an adequacy decision about the UK, the UK will be categorised as a “third country” for the purposes of GDPR. This would mean that organisations based in the EU will not be able to transfer personal data to the UK unless appropriate safeguards or exemptions are in place.
Action: Trustees should determine the extent to which personal data is transferred by or on behalf of their scheme to or within the EU and, if necessary, ensure appropriate provisions are agreed in early 2021 to enable such transfers to continue should an adequacy decision not be forthcoming.
Scheme funding and risk management
The scheme’s funding position could also be affected by Brexit-related market changes.
Action: Trustees should continue to monitor investment performance in the usual way and ensure that their investment advisers have factored the updated position under the Agreement into their strategy.
Cross-border occupational pension schemes
The UK-EU/EEA cross-border occupational pension scheme arrangements ended on 31 January 2020. The Pensions Regulator (“TPR”) has stated that it intends to publish revised guidance in “early 2021” on how trustees should manage cross-border aspects of their schemes for the post-transition period.
Action: Until TPR issues its revised guidance, it has advised that affected trustees should check with the relevant authority in the EU host member state in which their scheme operates.
Members living in the EU
The Government has confirmed that UK workplace pensions remain payable in the EU. However, prior to the end of the Transition Period, there were reports that customers of some UK banks living in the EU would have their UK current accounts closed once the Transition Period ended.
Where any members have been affected by this, the onus is on the member to inform the scheme of changes to their payment details.
Action: Trustees should ensure that their administrators are monitoring the situation and that they have robust processes in place to prevent fraud.