What would be the effect of a Brexit on the UK pensions sector? The short answer is nobody really knows. Nobody can know, in fact, until the two-year exit negotiations have been concluded and, even then, one suspects that the nitty gritty detail will take years to work out thereafter.

Let’s begin with what a Brexit can’t change in the UK pensions context. Trust law, contracting-out (although that’s about to end), indexation, preservation, pensions taxation, the employer debt regime, section 67, TPAS, the Pensions Ombudsman, the Pensions Regulator and auto-enrolment – to name but a few – are all home grown and won’t be impacted.

But many other features of the pensions world as we know it do have their origins in EU law. Perhaps the most notable of these are the scheme funding regime in the Pensions Act 2004 (which implements the IORP Directive 2003), the equal treatment requirements of the Treaty of the European Union which are now in the Equality Act 2010 and the Pension Protection Fund (which is the UK’s manifestation of the relevant pensions requirements of the Insolvency Directive 1982). As these have been written into UK law, Brexit won’t change them; and there is unlikely to be a great deal of legislative appetite to change them. The scheme funding regime is, by and large, working well and removing the social and financial protections provided by the Equality Act and the PPF would be politically “challenging”. Quite apart from that, the prospect of “un-Barbering” UK pension plans doesn’t bear thinking about!

Undoubtedly, the biggest impact of all on UK defined benefit pension plans is likely to be on investment and sponsor covenant.

• The prospect of a Brexit creates economic uncertainty in the markets plans invest in. UK pension plans are, perhaps uniquely, already dealing with Brexit. For instance, Mark Carney, Governor of the Bank of England, has already admitted that there is a referendum premium in the value of the British pound which will impact all pension plans which don’t have currency hedges built into their investment arrangements. In due course, any Brexit-induced increased volatility in investment markets will also make trustees sense check that their sponsor covenant warrants the additional risk involved. However, uncertainty in relation to the UK generally could have a beneficial impact on plan liabilities if, as is being widely predicted, a Brexit would result in gilt yields increasing.

• From a sponsor covenant perspective, the UK’s trading relationship with the EU would be fundamentally altered. Chances are it will be a bumpy ride for a number of companies. It is inevitable that some sponsoring employers would fail to anticipate the complex impact that a Brexit would be likely to have on existing contracts and contract renewals with their customers and suppliers. Sponsor covenants may weaken. Guarantor covenants may weaken. There would be a lot more for pension plan trustees to think about and consider in this regard post Brexit.

The quick fix for some corporates might be to transfer their UK operations to a group company elsewhere in the EU and novate contracts to preserve their trading status quo. Alternatively some PLCs may look to convert to a societas Europaeae. Either option could immediately attract the attention of the Pensions Regulator as potential abandonment.

For practical purposes, much would turn on the outcome of the UK’s exit negotiations with the EU. For instance, the UK might agree to maintain conformity with the EU data protection regime or the central clearing requirements of the European Market Infrastructure Regulation. If it does, no changes follow. However, if the UK decides to do something different, this could mean reviewing all agreements involving data protection provisions, IMAs, derivative contracts and so on.

Anything else? Frankly, who knows. But if Brexit changed the “mood music” so far as the GMP equalisation is concerned (the UK Government’s view that equalisation is required is based on EU law which would no longer apply) this would certainly be welcomed by many pension plan sponsors and trustees.