Crossroads for cross-border schemes


Certain regulatory requirements in relation to cross-border arrangements have fallen away post-Brexit. More recently, the Pensions Regulator (“TPR”) has updated its guidance for cross-border occupational pension schemes following the end of the Brexit transition period.

So, what is the current position for the 40 or so schemes which identified as cross-border prior to 1 January 2021?

The technical bit
The law governing UK-EU/EEA cross-border occupational pension scheme arrangements – in particular the authorisation and approval regime – ceased to apply from 1 January 2021. This means there are technically no longer any UK-based “cross-border” schemes within the meaning of the former regulations.

So far, so straightforward. However, as with many pensions technicalities, the strict legislative position doesn’t disclose the full regulatory picture.

The Pensions Regulator’s stance
Despite the cross-border regime no longer existing in legislation, TPR nevertheless remains focused on UK schemes that accept contributions from non-UK employers, and how automatic enrolment duties may be impacted for employers using schemes that formerly were cross-border.

On 31 March 2021 TPR issued updated guidance. It advises:

  • non-UK employers contributing to a UK scheme and UK trustees accepting such contributions – check with local regulatory authorities whether there are any restrictions on paying into a UK scheme
  • UK-based employers contributing to a non-UK scheme – consider taking local legal advice to assess whether those contributions can continue
  • employers using an EU/EEA scheme to satisfy their automatic-enrolment duties – check they can continue to do so (taking independent legal advice where appropriate).

Automatic enrolment
Employers must enrol eligible jobholders in an automatic enrolment scheme unless they are already active members of the employer’s qualifying scheme for automatic enrolment purposes.

Whether an employer can continue using a non-UK scheme (including an EU/EEA scheme) after 1 January 2021 will depend on whether it is a “qualifying scheme” or an “automatic enrolment scheme”.

If a non-UK scheme was a “qualifying scheme” on 31 December 2020, employers may be able to continue using that scheme provided it continues to meet the relevant quality requirements and other prescribed requirements for a non-UK qualifying scheme. Even so, the employer would still need to have a UK-based “automatic enrolment scheme” for new joiners.

If an employer is using a non-UK “automatic enrolment scheme”, they must urgently automatically re-enrol jobholders into a UK-based alternative arrangement which meets all other regulatory requirements for an automatic enrolment scheme.

What if my cross-border scheme doesn’t accept contributions?
For former cross-border schemes with no active members, TPR’s position is less clear. The guidance doesn’t expressly address this scenario, but suggests trustees will need to check the regulatory requirements of third countries in which members resided at the time they accrued benefits. This is to ensure there are no local restrictions preventing UK-based trustees administering deferred or pensioner benefits on behalf of those members.

This raises a number of practical and risk-based questions which affected trustees will need to consider together with the sponsoring employer(s).

A note on section 615 schemes
The changes in legislation have also affected some of the statutory provisions that, prior to 1 January 2021, governed section 615 schemes (many of which were also categorised as cross-border schemes).

However, we note that, to date, TPR has not updated its guidance to reflect those legislative changes. Trustees of section 615 schemes should therefore consider the statutory amendments carefully to determine the preferred way forward for their scheme.

We’re here to assist trustees and employers affected by the legislative impact on the cross-border regime and section 615 schemes. Please speak with your usual Sackers contact.

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