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Sunday 26 January 2020

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Pensions Europe urges final Brexit deal to consider pension sector; no deal could cost funds millions

Written by Talya Misiri
28/03/18

The final Brexit deal between the EU and UK must consider the impact on the pension sector, while a ‘no deal Brexit’ could cost pension funds millions, Pensions Europe has warned.

Following on from the European Council’s adoption of the guidelines on the framework for a future relationship with the UK after Brexit, Pensions Europe has published a paper on the issues that need to be considered “within or that will impact the pension sector”.

Pensions Europe has argued that if a Brexit deal is not reached, pension funds could be burdened with millions of euros in costs to rearrange derivatives transactions, which are currently cleared through London.

“In this challenging and uncertain environment, it is of utmost importance that policymakers and supervisors do not pose any unnecessary burden, costs and uncertainty for pension funds. Their consequences would be harmful also for the wider European public, as they would lead to decreasing investments by pension funds in the European real economy,” Pensions Europe advised.

In the event of no deal, it is likely that the negative impact on the economy will then impact investment markets and put the funding of schemes under pressure, the paper noted.

Rather, the paper states that pension funds would like to see Brexit negotiations finalised in a way that assures “stability in economic terms and impact on investment markets”.

In addition, the body is emphasising the need to agree that citizens will maintain their right to pensions, healthcare and other social security benefits.

Furthermore, the consideration of IORPs’ assets is necessary, the paper highlighted. Currently, 51 per cent of IORPs’ assets in the European Economic Area are from the UK and 33 per cent are from the Netherlands. Following Brexit, the Dutch IORPs would account for 67 per cent of all IORPs’ assets in the EEA. “This would lead to both a proportionality and subsidiarity issue with regard to a European approach on IORPs,” Pensions Europe explained.

Pensions Europe has suggested that a transitional period before the UK’s exit from the EU could take place to finalise some of the issues it has outlined in the paper.

Adding to its recommendations, Pensions Europe advised that scheme employers and trustees need to work with their legal, actuarial and investment advisers to consider the risks related to Brexit and how they can be prepared for them.

Europe and the UK aim to reach a common, overall understanding for the framework outlining their post-Brexit relationship. Pensions Europe hopes that this agreement will be found in time, it has noted.

Pensions Europe vice-chair and chair of its working group on Brexit Jerry Moriarty said: “We are pleased about the agreement reached by the EU and the UK on parts of the legal text of the Withdrawal Agreement and that EU citizens coming to the UK will enjoy the same rights as those having arrived before the start of the transition period. The removal of article 32, which limits the right of onward movement for UK citizens in the EU27, is also welcome. It is also good news that citizens will maintain their right to pensions, healthcare, and other social security benefits, and if they are entitled to a cash benefit from one state, they may generally receive it even if they decide to live in another state.”

Pensions Europe ceo, secretary general Matti Leppälä also commented: “ I hope that Brexit will not negatively affect the wider economy and put new barriers in the way of asset flows across Europe. A strong economy is needed so that sponsoring employers all over Europe can support high-quality workplace pension schemes and a robust financial sector is crucial for pension funds’ investments.

“In this challenging and uncertain environment, it is of utmost importance that policymakers and supervisors do not cause any unnecessary burdens, costs or uncertainty for pension funds. Their consequences would be harmful also for the wider European public, as they would lead to decreasing investments by pension funds in the European real economy that creates jobs and growth. Instead, policymakers should focus on removing the barriers to cross-border investment in Europe.”



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