Concerns around no-deal Brexit and its potential effect on the Pension Protection Fund

23 June 2020

Pension experts are concerned about the effects that a no-deal Brexit could potentially have on the Pension Protection Fund (PPF). Due to the economic devastation caused by COVID-19, it is thought that many pension schemes could fall into the PPF.

Where a sponsoring employer of the arrangement is EU-based, and does not have an ‘establishment’ in the UK, issues could arise. The lifeboat protection is currently in place for members of certain UK defined benefit schemes but in order to be eligible, the pension scheme must have its main place of administration in the UK, which will remain unchanged with Brexit. The issue is, that the mechanism for triggering a PPF assessment period where schemes have EU-based employers could potentially be altered from January 2021, following the end of the transition period.

Clive Pugh, from Burges Salmon, commented:

“From my own experience, I would estimate around 20 percent of schemes have an overseas employer or connection. This is a major issue impacting a large number of scheme members.”

A PPF expert confirmed that a no-deal Brexit will not affect the level of protection it provides to eligible UK Defined Benefit (DB) pension schemes that have a sponsoring employer registered in the UK, but the mechanism for triggering a PPF assessment period following an EU employer’s insolvency could be impacted.

To put things into practice, the case of Flybe can be used. Flybe collapsed into administration in March 2020 due to the effects of coronavirus and the decreased amount of flight bookings. The pension scheme was registered in the Isle of Man which meant that members were not entitled to pension protection from the PPF.

 


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