Draft Occupational and Personal Pension Schemes (Amendment Etc.) (EU Exit) Regulations 2018 Draft Occupational and Personal Pension Schemes (Amendment etc.) (Northern Ireland) (EU Exit) Regulations 2018 Debate
Full Debate: Read Full DebateJack Dromey
Main Page: Jack Dromey (Labour - Birmingham, Erdington)Department Debates - View all Jack Dromey's debates with the Department for Work and Pensions
(5 years, 7 months ago)
General CommitteesIt is a pleasure to serve under your chairmanship, Mr Robertson. The statutory instrument, which is not objectionable, makes technical changes to pensions legislation to ensure that retained EU law continues to operate as it has previously, but with us outside the EU.
However, we have to raise certain concerns relating to the prospect of no deal in respect of investing, including whether passporting rights will continue regardless. The biggest impact could be felt at the next stages by those in defined contribution schemes, whose pension is dependent on market value. For some the impact could be very serious indeed.
Aside from the likely chaos and economic damage, the technical implications of no deal for pension fund investing could impact asset values. First, as a member state of the EU, we can operate within the single market, which gives UK investors access to other members states’ financial services via what is known as the passport arrangement. Secondly, that is because services, particularly financial services, are covered by the general agreement on trade in services, which is the first and only set of multilateral rules governing international trade in services, and which is inferior to single market operations. Thirdly, under the GATS, the UK’s financial services sector would lose a number of benefits it currently enjoys under EU law, especially passporting rights, resulting from the financial services single market.
That is why discussions about future trade relationships with the European Union have centred on an equivalence regime, which means terms of trade equivalent to those we enjoy in the single market. Fund managers and banks can get around no deal by establishing and operating an arm in the EU, and many already have. It is likely that the EU will allow investing between the UK and the single market to continue to ensure that there is no significant disruption to the banking and investing sectors of the economy.
Significant issues then arise for asset managers, who manage 98% of our pension assets, in the Brexit negotiations. Those issues include the continued ability to delegate management of European funds to UK managers so that the UK can continue to manage assets for clients and funds from across the EU; a clear timetable for UK withdrawal so that asset managers can plan effectively; and whether the UK Government will maintain broad regulatory equivalence with its EU counterparts in future so that, whatever the ultimate shape of Brexit, investors on both sides can maintain confidence in the asset management regime in the UK.
No deal presents significant risks for all pension fund investors and, more significantly, for defined contribution scheme members who, by the very nature of those arrangements, bear all the risks of investing. Falls in asset value reduce the value of the individual’s investment pot. Those who are in retirement and who are drawing down money from their pots could see them reduced to insufficient levels.
Because financial services are covered by World Trade Organisation rules, technically, continued trading and management of pension assets would cease between the UK and the EU member states, because the UK would become a third country with no passporting rights. A no deal would have a significant impact on relationships with the EU and would raise significant questions about the nature of any future trading relationship for financial services. In those circumstances, we would be relying on the EU to maintain equivalence all through the period post no deal only on the basis of grace and favour, due to the severe impact on the EU member states’ financial services sectors and the fact that their own pension funds use UK asset managers, who manage £2.5 trillion of clients’ money from outside the UK.
UK financial institutions could establish subsidiaries and apply for national licensing in the EU27. The host countries’ authorities would then supervise their EU27 branches in matters of reorganisation and winding up. National licensing schemes are, however, more limited, complex and costly because of the differences between them. Alternatively, the UK could ask the Commission for equivalence treatment. However, the equivalence regime is very limited in its scope and can be withdrawn at any time.
In conclusion, the regulations before us are not in themselves objectionable, but there are some very significant issues raised for pensions more generally, and for defined contribution schemes in particular.