Several years ago I asked a senior Association of British Insurers figure to name a single EU directive that has benefited UK financial services. After a noticeably too long pause the individual ventured the response: ‘Hmm, what about Priips?’ Disclosure rules around packaged retail and insurance-based investment products are hardly likely to get the man in the street enthused about the European project. Conversely we have become used to negative stories about EU red tape, much of which is gold-plated by our own regulator, holding back our sector.
It is not appropriate for a trade publication to take a side on this momentous debate. But it is worth reflecting on what we have learnt over the course of the EU referendum campaign, and what it means for our sector. Of course politics and economics are not pure sciences, and so we can never really know what would have happened had a different course been followed. But we have heard many views on how a Brexit will impact the UK economy, and with it the provision of financial services and benefits to British workers.
Pensions is a perfect example of a sector where attempting to apply transcontinental solutions seems pointless. As the Society of Pensions Professionals has pointed out, 70 per cent of the defined benefit promises in the entire EU are held within UK schemes. Similarly, the impact of the gender-neutral insurance underwriting rules hit the UK at-retirement market bigger than anybody else. So why should a group of countries with no interest in DB or annuities whatsoever have a say in how our schemes are run? The flip side of this issue is the fact it is not clear whether the deal we would get on leaving would be such that we were able to ignore EU directives on pensions.
Despite the problems caused by EU solvency and regulatory rules, the ABI is firmly in support of Remain. It cites a £21bn net surplus in sales to EU countries as a reason both to remain within the common market and be at the table when that market’s rules are set.
The Treasury has played its part in what Outers describe as Project Fear. State and private pensions will fall, we are told, because the economy will not be able to support them any longer.
JP Morgan has made clear it thinks a Brexit will not only reduce growth but also lead to it potentially having to move jobs out of London.
And in the last few weeks the great majority of the press releases, research and commentary I have received from economics and investment professionals share the view of George Soros that a Brexit will be net negative for UK PLC’s bottom line.
This uncertainty has led to intense market volatility, has created opportunities and challenges. With Hymans Robertson calculating the six-week run-up has seen a £120bn increase in DB liabilities, those sponsors looking to derisk will be watching Friday morning’s votes with particular interest.
But for the employee benefits sector perhaps the most significant short to medium term impact of the Brexit campaign, whichever side wins, may prove to be putting a break on fundamental reform of pensions tax relief. The signs are that whatever the result, the Conservative Party is not going to be a very happy place in the coming months. Potentially unpopular policies are therefore going to face headlines, with the Government’s majority just 12 MPs.
Will George Osborne still be Chancellor at the time of the Autumn Statement? Very possibly. Will we have a clear-the-air General Election any time soon? That too is possible. Does Osborne have sufficient political capital to push through a radical reform of pensions tax relief? And even if he does, would that help him in is goal of becoming the next Prime Minister?
John Greenwood, editor, Corporate Adviser