Pension Funds Insider

Pension Funds Insider brings the latest pensions news and industry insights; from investment and governance updates to new mandate appointments and pensions regulatory information.

Brexit Blight

09 February 2017

Image for Brexit Blight

Under the shadow of Brexit, Ian Neale urges the pensions industry not to wait for things to change before they act.

In Samuel Beckett's famous play, "Waiting for Godot", there is a repeated exchange between two characters

"Let's go." "We can't." "Why not?" "We're waiting for Godot."

Godot never appears.

I wonder if pensions policymakers are feeling similarly stranded at the moment, waiting to see what comes out in the wash of Brexit.

Or whether, conversely, some are using the uncertainty created by the decision that the UK shall leave the EU to put off making difficult decisions.

For example, VAT: HMRC has now three times postponed publication of guidance on the correct application of the CJEU decision in the PPG case, concerning the scope for a scheme sponsor to recover VAT on the cost of services to pension schemes.

If and when the UK is no longer part of the EU, the VAT Directive will no longer apply and the UK will be free to make its own rules.

Uncertainty is never a comfortable position, and where there is no assurance of resolution any time soon people become agitated. We are told that the process of exiting the EU will take two years from the date on which Article 50 is triggered.

Nobody believes all will be cut and dried in that time. Far more likely is it that muddle and confusion will permeate the process, even to the extent that we may never arrive at a recognizable exit gate.

So we have to cope with the necessity of making decisions under amid uncertainty – a new lease of life for actuaries beckons. Why "necessity"; can't we simply freeze everything for a while?

The prospect of a year or two (or three) with no government intervention in pensions is appealing but beguiling.

There are things we could do without, such as the current proposal to slash the money purchase annual allowance, only two years after its introduction.

That should follow the insane secondary annuity market initiative into Room 101.

Then there are issues that do warrant attention, such as the cost of pension saving; but here again there are arguably bad ideas which simply act as expensive sledgehammers to crack minor irritants, such as capping early exit charges in occupational schemes.

Taking more time to tease out the true costs, for example via the transparency movement, will be more worthwhile.

It could be viewed as downright irresponsible if 'Brexit' were used as an excuse not to reconsider how defined benefit schemes should be valued.

Billions of deficit recovery contributions paid over the past decade appear to have made little or no difference to the overall funding position.

Extending recovery plans looks a lot likekicking the can down the road.

Some might say now is not the time, given the possible effects of leaving the EU on employer covenants. Some sponsors will be adversely affected if denied access to the EU market on current terms.

Uncertainties around removal of 'passporting' for financial services firms and possible tariff barriers generally do not encourage major economic decision-making.

But we must not become paralysed. It is a truism that pension saving is a long-term proposition. Equally well-understood is the notion that tweaking the pensions tax rules for short-term gain is inimical to good governance.

So the opposite reaction of imitating headless chickens is ruled out (and in any case the Brexit axe has not yet fallen).

We must plan ahead, and given the general consensus that UK pensions law should not be much affected one way or the other if we leave the EU, we should ignore the temptation to act like dazzled rabbits.

Regardless of whether we view the light ahead as the end of the tunnel or an oncoming train, there is a strong argument for forging ahead with strategic planning for our future pensions.

'Waiting for Brexit' – regardless of whether we expect salvation – is not a strategy.

Ian Neale, Director, Aries Insight.