After months of negotiations the UK and the EU finally reached agreement, on Christmas Eve, over the terms of their future trading and security relationship. The Trade and Cooperation Agreement (TCA), as it is known, is at its heart a classic, but not very ambitious free trade agreement – providing tariff and quota-free trade in goods, but little mutual recognition and very modest commitments on services. The UK has approved the agreement and it came into effect provisionally at 11pm (GMT) on 31 December 2020, pending the EU taking the necessary steps to fully approve it.

The fact that tariffs and quotas will not apply to goods traded between the UK and the EU is good news for many UK and EU businesses. However, notwithstanding this, many new requirements and restrictions arising from the end of the status quo transition period are now applicable. Businesses need to adjust to the new trade rules and all eyes will be on the economic impact of these new arrangements over the short and the longer term.

We can also anticipate further tensions and flashpoints in the years ahead of this grand experiment unfolds given the multiple governance, review and termination clauses contained in the TCA which allow for the imposition of tariffs and quotas and, in a worst-case scenario, a WTO exit. The first flashpoint may well arise in the context of financial services regulation on which no agreement has so far been reached.

Given the complexity of the deal reached between the UK and the EU it will take time for businesses, governments and authorities to understand, implement and make use of it. But here are some initial thoughts on what it means for UK pension schemes and sponsors.

Impact on scheme investments

The ups and downs of the Brexit negotiations resulted in significant market volatility and currency fluctuations. Therefore, it is to be hoped that the relative certainty which this deal now brings will lead to greater stability (as far as the impact of Brexit on financial markets is concerned, in any event). The impact of changes in the UK’s trading and legal relationship with the EU (and, as new free trade agreements are agreed, with the rest of the world) could affect (positively or negatively) asset values, investment returns and exchange rates over the longer term. These trends will clearly need to be monitored closely.

Now that we know the terms on which UK-EU trade will be conducted moving forwards, trustees of defined benefit (DB) schemes should obtain updated advice on the impact of Brexit on their scheme’s investment strategy and any actions they may need to take to mitigate any immediate and longer-term downside risks.

Trustees of defined contribution schemes should review the investment funds that are available to members and consider with their investment advisors whether they remain appropriate in light of any material immediate and longer term risks to members’ funds.

Impact on sponsors

Pension scheme sponsors should revisit their assessments of the potential impact of the anticipated changes in the UK’s legal and trading relationship with the EU on their business, now that the terms of the future trading relationship are known. In particular, they need to understand the potential impact on their business of:

  • the introduction of any new legal and regulatory barriers to trade, including restrictions on market access (for example, in relation to financial services, although note that the EU and UK have agreed in a Memorandum of Understanding to establish a framework of financial services regulatory co-operation by March 2021)
  • changes to immigration rules and the labour market, and
  • short and longer term changes in the value of Sterling.

Although the UK’s agreement on its future relationship with the EU is the most significant by far, on 31 December, all of the bilateral trade agreements which were applicable to the UK by virtue of its membership of the EU ceased to apply to the UK. Prior to the end of the transitional period very substantial progress had been made by the UK Government to replace or roll over these agreements. See here for further background and here for a complete list of the trade agreements that have been reached with the rest of the world (updated from time to time).

To the extent that they haven’t already been implemented, contingency plans should be actioned by businesses to address all material risks associated with Brexit. For example, across a range of sectors, we have helped clients set up new subsidiaries, acquire new regulatory approvals in the EU or the UK, prepare for changed distribution channels and protect their people working across borders. For those businesses that have had to make significant changes in order to continue to carry on business in the EU, particularly financial institutions, these changes should already have been implemented.

For businesses that trade in goods between the UK and the EU, although careful plans have been laid, the acid test has now come with new rules now applying at the frontiers and within the EU and the UK.

Now that a deal has been agreed, pension scheme trustees should also reassess the potential impact of the changes in the UK’s legal and trading relationship with the EU on their sponsor’s business and how this may affect its support for their scheme. Assessing the potential impact of these changes is particularly urgent where a scheme’s sponsor is already struggling as a result of the ongoing impact of and disruption caused by Covid-19. Trustees should also engage with their scheme’s sponsor to check what steps have been, or are being, taken to address any material disruption or risks to the sponsor’s business.

More information on the impact of Brexit on businesses can be found on our Beyond Brexit blog.

Impact on scheme funding and security arrangements

Market volatility and the economic impact of changes in the UK’s legal and trading relationship with the EU may impact the funding level of DB schemes. Sponsors and trustees should consider how this may impact funding and security arrangements that are in place. For example, contingent payments under funding or security arrangements may be triggered where a scheme’s deficit increases or where there is a weakening in a sponsor’s financial position. The impact of any contingencies being triggered on the sponsor’s business should also be assessed.

Impact on members living in the EU27

Notwithstanding the fact that we have a deal, some banks have been forced to close the UK bank accounts of individuals living in the EU27 as a result of the UK leaving the EU single market. This could mean that schemes with pensioners or dependents in the EU27 may be prevented from making payments to some of these members. Schemes need to be prepared to respond on behalf of members who find themselves in this position and find a suitable work around.


Generally, the TCA does not deal with data protection issues. However, it does provide for a 4 month window (which can be extended to 6 months) during which the UK will still not be treated as a ‘third country’ for GDPR purposes. This provides extra time for the EU to provide its data adequacy decision and avoided a 31 December ‘cliff edge’.

The ICO has confirmed that the agreement between the UK and the EU enables businesses and public bodies across all sectors to continue to freely receive data from the EU (and EEA). However, as a sensible precaution, the ICO recommends that businesses work with EU and EEA organisations who transfer personal data to them, to put in place alternative transfer mechanisms to safeguard against any interruption to the free flow of personal data from the EU to the UK.

See this blog post on the interim data transfer window from our data protection colleagues for further details.

Impact on UK law and regulation

Since the transition period ended at 11pm on 31 December 2020, the UK has become a third country for the purposes of EU law rather than being treated as an EU Member State. From this point onwards, relevant EU law which was retained in UK law by virtue of the European Union (Withdrawal) Act 2018 continues to have effect.

There were no material changes to UK pensions law and regulation at the end of the transition period. However, the UK will be able to diverge from new and existing EU law in future if it chooses to (however, we do not anticipate any radical changes to existing UK pensions law and regulation in the short term). In addition, future decisions of the Court of Justice of the European Union will no longer be binding on UK Courts, although they are likely to be treated as highly persuasive in cases which concern the interpretation and application of retained EU law.

Webinar invitation


Thursday 7 January 2021, 12 noon – 1pm BST

This video webinar will provide an early assessment of the terms of the agreement, and how they might affect businesses. The webinar will also consider the political dynamics including the implications for the future evolution of the UK/EU relationship.

Our Brexit Director, Paul Butcher, will be joined by James McBride, a Partner with Hanbury Strategy, James Palmer our Senior Partner and Chair and Eric White, a senior Consultant in our Brussels office.

Further information

More analysis on the impact of the TCA can be found on our Brexit hub and our Beyond Brexit blog.

Contact us

If you have any queries about the impact of Brexit on your business or pension scheme speak to your usual HSF adviser or contact one of our pension specialists.

Alison Brown
Alison Brown
Executive Partner (West), Pensions, London
+44 20 7466 2427
Samantha Brown
Samantha Brown
Regional Head of Practice (EPI), Pensions, London
+44 20 7466 2249
Rachel Pinto
Rachel Pinto
Partner, Pensions, London
+44 20 7466 2638










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