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Print articleThe Retained EU Law (Revocation and Reform) Bill - What could it mean for pensions?
January, 2023 - Shoosmiths LLP
On 22 September 2022, the UK government announced that all retained EU laws will be sunset (meaning revoked) on 31 December 2023 under the Retained EU Law (Revocation and Reform) Bill (Bill).
The Bill is the government’s pledge to reclaim the sovereignty of Parliament and to restore the supremacy of Acts of Parliament (which were forced to play second fiddle to European law during the UK’s time as a Member State), but what does it do and more importantly, what does in mean for pensions?
It is crucial to note at the outset that the Bill is far from finalised, and a myriad of possibilities for its future make it impossible to take a view on how pension schemes should prepare at this stage. This article sets out the background to the Bill and explores some of its possible impacts on UK occupational pension schemes.
Brexit and transitionary measures
The terms governing the UK’s departure from the EU were set out in the EU-UK Withdrawal Agreement, which was brought into UK law by a number of measures, including the European Union Withdrawal Act 2018 (EU(W)A 2018) (as amended by the European Union (Withdrawal Agreement) Act 2020 (EU(WA)A 2020)).
The UK exited the EU on 31 January 2020, and the departure was followed by an implementation period (often referred to as the transition period) during which the effect of EU law was preserved until 31 December 2020 (referred to in the EU(W)A 2018 as the IP completion day).
In effect this meant that was no material change to the way in which EU law applied in the UK during the transition period and gave the government time to make amending legislation to govern how it would apply after IP completion day. To understand what the Bill does, it is necessary first to look at how EU law worked after that date.
Retained EU law
The EU(W)A 2018 removed EU law from UK statute and introduced a new replacement body of law, known as retained EU law, in the form of saving provisions which allowed various sources of EU law to remain in effect in UK law after IP completion day including:
- EU-derived domestic legislation to remain in effect, for example the Pensions Regulator (Notifiable Events) Regulations 2005, SI 2005/900, which implemented Article 50 of the IORP II Directive (EU(W)A 2018, s 2)
- direct EU legislation for example the General Data Protection Regulation, Regulation (EU) 2016/679 (EU GDPR) (EU(W)A 2018, s 4)
- directly effective rights under EU treaties, for example the right to equal pay under Article 157 of the Treaty on the Functioning of the EU (TFEU) and some limited directly effective rights under EU directives (EU(W)A 2018, s 4)
The EU(W)A 2018 also explicitly excludes certain things from retained EU law, in particular:
- any modifications to the laws which remain in effect made by the EU after IP completion day
- general principles of EU law that were not recognised by the European Court before IP completion day. EU(W)A 2018 also prevents UK courts and tribunals from disapplying UK laws because they are incompatible with general principles of EU law (EU(W)A 2018, Sch 1)
- supremacy of EU law (except to the extent that it is required to interpret any law made before IP completion day) and the Charter of Fundamental Rights of the European Union (EU(W)A 2018, Sch 5)
The Charter protects various rights and freedoms, for example the right to human dignity and the prohibition of slavery and forced labour. The UK unsuccessfully attempted to opt out of the Charter, so it not surprising that it was not converted to retained EU law. However, its omission does not mean that fundamental freedoms in the UK will fall away. Rights and principles that exist in the UK irrespective of the Charter remain in place, including those arising from recognised general principles of EU law.
So as a nation we are not on the brink of a human rights crisis, however the Bill could have a significant impact on all aspects of life in the UK, including pensions. The vast majority of affected pensions laws were converted to retained EU law by EU(W)A 2018, s 4 which will be repealed by the Bill in its entirety.
The Bill
If the Bill were to become law in its current form, all retained EU law would be revoked on 31 December 2023 (sunset date), though the government could agree to delay the sunset date, subject to longstop of 23 June 2026. Any retained EU law the government wishes to keep would need to be codified into UK law before that date.
This is a deliberate move by the government. The government only wants to save what it thinks the UK needs and it wants to make the process for amending, repealing or replacing retained EU law easier. At present, retained EU law exists in various formats, from EU instruments and court judgments to Acts of Parliament and statutory instruments, and the format dictates the ease with retained EU law can be amended. Retained EU law which the government chooses to save would be codified in secondary legislation, primarily regulations, which, compared with primary legislation, can be amended with relatively little scrutiny and greater speed. Once codified, they will be known as assimilated laws.
This process is already underway, but it will not be a quick one and at the time of writing this article the sunset date is only a year away. It seems likely that the date will need to be postposed, as a there is arguably not enough time for the government to identify all of the retained EU law is wants to save and allow pension schemes (and all other organisations across the UK) time to establish how their operations would need to change in response.
Retained EU law dashboard
In June 2022, the government published the retained EU law it has already identified in an online retained EU law dashboard. The dashboard includes around 2,400 pieces of retained EU Law, however that figure is expected to increase.
Retained EU law affecting pensions
Only 36 of the dashboard’s 2,400 pieces of retained EU law relate to private pensions and pension protection. Given the size of the Department for Work and Pensions (DWP) (which will be responsible for selecting and codifying retained EU laws to retain) and its track record when it comes to passing regulations, 36 may seem like a manageable amount. However, included in that number are some of the most significant and complex areas of pensions law, for example:
- the Court of Justice of the European Union’s (CJEU) decision in the case of Barber and associated provisions in the Equality Act 2010 (EqA 2010)
- provisions introduced to the Pension Schemes Acts of 1993, 2015 and 2017 and the Pensions Acts of 1995 and 2004 to implement the IORP II Directive. This includes requirement for trustees to operate effective systems of governance which will form part of The Pensions Regulator’s (TPR) combined code of conduct, due to be published imminently
- employer related investment restrictions in the Occupational Pension Schemes (Investment) Regulations 2005, SI 2005/3378 (Investment Regs) which have recently been subject to consultation and amendment to account for the differing needs of collective money purchase schemes
- the decisions of the CJEU in the cases of Grenville Hampshire v The Board of the Pension Protection Fund (Hampshire) (C-17/17) and Pensions-Sicherungs-Verein VVaG v Günther Bauer (Bauer) (C-168/18)
- changes the government committed to make to the EqA 2010 to reflect the Supreme Court’s judgment in Walker v Innospec (Innospec) [2017] UKSC 47
We have already seen activity some of these key areas.
PPF compensation payment restrictions (Hampshire and Bauer)
Article 8 of Archived Directive 2008/94/EC (Archived EU Insolvency Directive) requires member states to take ‘necessary measures’ to protect accrued occupational pension scheme rights in the event of the scheme employer’s insolvency. It is transposed into UK law by the Pensions Act 2004 (PeA 2004) and the establishment of the Pension Protection Fund (PPF).
In Hampshire, the CJEU ruled that Article 8 entitled members to an ‘individual minimum guarantee’ under which they must receive at least 50% of the value of the accrued pension entitlement on the insolvency of their employer. The ruling had direct effect on the UK, so the PPF had to ensure that the Article 8 minimum guarantee was met going forwards.
The CJEU went further in the Bauer case, ruling that that even where members are receiving 50% of their accrued rights, a reduction to those rights is ‘manifestly unjust’ where it would cause the member to live below the at-risk-of-poverty threshold (as determined by the EU statistical office, Eurostat).
Impact of the Bill
The government does not intend to codify the effects of Hampshire or Bauer into UK regulations so if the Bill becomes law, these protections will be lost.
At the Bill’s fourth reading in November the Minister of State in the Department of Business, Energy and Industrial Strategy told the Public Bills Committee that the DWP ‘does not intend to implement the Bauer judgment through the benefits system, as it is a European Court judgment that does not fully align to the UK private pension protection scheme.’ Of the Hampshire case, the Minister said the judgment ‘is a clear example of where an EU judgment conflicts with the UK government’s policies. Removing the effects of the judgment will help to restore the system to the way it was intended to be.’
Labour MPs tabled amendments to the Bill aimed at retaining the effects of Hampshire and Bauer. It will ultimately be for the DWP to decide on whether any amendment should be made to assimilate the effects into UK law but voting during the reading did not paint a particularly optimistic picture; of the 15 Committee members who voted on the amendments, only six were in favour.
Temporal restrictions and discrimination (Innospec and Beattie)
The EqA 2010 prohibits discrimination on the grounds of various protected characteristics and is the legislation through which the UK implemented the Equal Treatment Framework Directive, Directive 2000/78/EC (Framework Directive).
The EqA 2010 builds a non-discrimination rule into all UK occupational pension schemes. It prohibits discriminatory rules or practices in pensions, subject to certain exceptions. The exceptions have been the subject of legal challenge in recent years, and the outcome of some of those cases has expanded the protections available to scheme members. Some of those protections were not converted into retained EU Law and are no longer available, and others could feasibly be removed by the Bill.
Innospec
In Innospec, the Supreme Court held that the temporal limit on the payment of survivor’s benefits in the EqA 2010, Sch 9, para 18 was incompatible with the Framework Directive and should be disapplied.
EqA 2010, Sch 9 allows schemes to restrict the benefits payable to same sex surviving spouses and civil partners to those which relate only to pension rights accrued by the member on or after 5 December 2005 (the day the Civil Partnership Act 2004 came into force). Survivor’s benefits payable by reference to rights accrued after that date must be paid on an equal basis.
The Supreme Court held that the restriction in EqA 2010, Sch 9 was incompatible with the Framework Directive and must be disapplied. The offending wording remains in the EqA 2010 but has had no legal force since the judgment.
Impact of the Bill
The Innospec decision constitutes a directly effective right, retained as retained EU Law under EU(W)A 2018, s 4. As such, the government will need to codify it into UK law in order for the effect of the decision to survive the sunset date. So while the Bill will not cause the Innospec decision to automatically fall away (as it concluded long before IP completion day), it could affect the extent to which others may rely on it in the future.
It seems unlikely that the government will take no steps at all to codify Innospec. In October 2020 (during the transition period) the government committed to amending EqA 2010, Sch 9 to account for the decision, making it clear that it would be a tidying up exercise only, and that it had no intention of changing the law back to the previous position.
The government’s statements in relation to Innospec should not, however, be taken as any indication that it is willing to extend the protections any further. Earlier this year 17 claimants tried to use a similar argument in an age discrimination claim and the DWP successfully argued that the protections they claimed were no longer available in UK law.
Beattie
In Beattie v 20-20 Trustee Services and Federal Mogul (Beattie) [2022] Lexis Citation 108, the claimants argued that Article 3 of the Equality Act (Age Exceptions for Pension Schemes) Order 2010 (Age Exceptions Order 2010), SI 2010/2133 was similarly (to Innospec) inconsistent with the Framework Directive and should be disapplied.
Age Exceptions Order 2010, SI 2010/2133, Art 3 provides that certain age discriminatory rules or practices will not breach the non-discrimination where those rules or practices relate to pension rights accrued before 1 December 2006. The claimants challenged its validity in relation to an age-based reduction to their benefits in a PPF assessment period. Two of the claims were lodged before IP completion day, and the remaining 15 were lodged some nine months after it.
The Employment Tribunal (ET) determined that the case was indistinguishable from Innospec and that Age Exceptions Order 2010, SI 2010/2133, Art 3 was incompatible with the Framework Directive and should be disapplied. The decision was appealed and the DWP was permitted to join the appeal proceedings where it argued (among other things) that the ET had failed to take account of the EU(W)A 2018. It said that the Framework Directive was not retained as retained EU law rights claimed by the claimants and were no longer available under UK law.
The Employment Appeals Tribunal upheld the appeal against the 15 claimants whose claims were lodged after IP completion day. It said that the ET made its decision based on the principle of non- discrimination as embodied in Article 21 of the Charter and because the Charter was explicitly excluded from retained EU Law after IP completion date, it was not open to the Tribunal to disapply Age Exceptions Order 2010, SI 2010/2133, Art 3 because it was incompatible. The two claims made before IP completion day will be allowed to proceed.
Impact of the Bill
The Beattie decision makes it clear the government has no intention of allowing occupational pension scheme members to rely on the protections afforded by EU law to defend discrimination claims which challenge UK legislation going forwards. The extent to which these sorts of protections will be available at all will depend on the extent to which the government decides to include them in our own statute books. If this case is indicative of how the government will approach the Bill, members could see some protections lost permanently.
Data protection
For pension schemes, the impact of the Bill is not restricted to pensions specific retained EU Law. Pension schemes will also be impacted by any wider changes, especially those which affect the strength of their sponsoring employer’s covenant. However, the greatest area of wider concern is likely to be data protection.
In January 2022, the government pledged to create a data protection regime that is more proportionate and less burdensome than the EU GDPR (or the Retained Regulation (EU) 2016/679 (UK GDPR) as it is known in its retained form). The Bill could be the trigger for this new proposed regime.
Changes will not be easy for pension schemes to implement. The process of ensuring their documentation, systems and processes met the standards required by the EU GDPR when it came into force was a mammoth task. Schemes hold vast amounts of personal data which must be processed and managed extremely carefully for the safety and protection of members.
In addition, pensions dashboards, which will allow individuals to view all their pension savings information across multiple schemes in one place, are being designed and built around the requirements of the UK GDPR. The first schemes are scheduled to connect to the dashboard digital infrastructure at the end of next summer, so any changes to the UK GDPR arising from the Bill will have to be built in once that process has started, which could lead to delays in the connection timetable.
What happens next?
It is too early to predict what will happen with the Bill. Unprecedented deregulation (if all regulations are allowed to expire), a return to business as usual (if they are all codified in regulations), or something in between are all potentially viable scenarios at this stage.
It is also possible that the Bill will never come into effect or if it does, it could be repealed before the sunset date. On the Bill’s current terms the sunset date can be pushed back to 23 June 2026. The next general election must take place by 23 January 2025 and could be held before that. If the sunset date is deferred until after the general election, a new government could amend it or scrap it entirely.
The government is still trying to steady the ship after weeks of turmoil in the pensions world and elsewhere. The UK faces an extended period of uncertainty as the cost-of-living crisis continues and we stare down the barrel of a recession, which will extend well into 2023. A wholesale change to legislation is likely to add to that uncertainty, so it is hoped that the government will carefully consider the appropriateness of the Bill and the timescales it envisages given the current socio-economic circumstances.
Interviewed by Banita Kalia and Rebecca Regan
This analysis was first published on Lexis®PSL on 20 December 2022 and can be found here (subscription required).
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