At exactly 6.00 a.m. this morning it became mathematically certain that the people of the UK had democratically chosen that it should leave the European Union. The final results are now in: 17.4 million for Leave, 16.1 million for Remain.
The immediate reaction is that a stock market crash is in progress as the markets had expected a Remain win and the currency markets show a clear belief that the British economy will pay a substantial price for the decision. UK traders are largely based in London and may have judged the mood too locally (London had most of the strongest pro-Remain areas).
Pension schemes are long-term savings vehicles and trustees and sponsoring employers are unlikely to gain by a knee-jerk reaction. Asset values are likely to fall in the short-term and there will be increased uncertainty about interest rates and inflation. Those with hedging investment strategies will have some protection.
In the medium term, schemes do need to deal with what happens next. Some politicians are suggesting that the referendum result will result in a re-negotiated deal with Brussels rather than an actual exit, but that seems unlikely. A new referendum on Scotland's relationship with England and Wales (or Europe) is a real possibility.
In particular trustees need to understand the employer's business plans and the impact on the sponsoring group's covenant. Where support comes from a non-UK parent company in the EU it will be important to monitor what politicians negotiate on cross border enforceability of contractual obligations and local advice in that company's jurisdiction will be needed in due course.
A number of investment vehicles used by pension schemes operate under EU "passport" rules, such as funds based in Ireland and Luxemburg. Schemes invested in these will need to monitor political developments to see that they will still be permitted and value for money (as punitive tariffs or trading taxes will make them unattractive).
Legally trustees must have an internal controls framework that identifies risks and what the trustees can do to mitigate the results of adverse events. Those will need review in the next few months taking into account the scheme's employer(s) and investments.
We are, of course, available to help with all your legal needs and do contact us if you want to discuss what help we can provide.
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