Uncertainty and turmoil across the board as the UK votes to leave the European Union
The electoral commission’s historic announcement today that the result of the UK’s referendum on membership of the European Union was a victory for the “leave” campaign is sending shock waves around the globe. Prime Minister David Cameron reacted by announcing his resignation.
Companies face great uncertainty until the UK’s ‘exit strategy’ is defined and trade negotiations with the EU are completed. The impact on organisations, their customers and their people is going to be profound.
According to Deborah Cooper, Partner at Mercer, “The UK has not woken up to find itself outside the EU but, by accepting the referendum results, the UK government has packed its bags and is walking towards the door. The next stage is for the UK to invoke Article 50, officially notifying the European Council of the UK’s intention to leave and beginning the formal process of separation. Although this process could be started right away, the government could choose not to invoke Article 50 immediately and develop its exit strategy before initiating the official negotiations. In either case, the uncertainty will breed market volatility.”
According to Mark Quinn, Partner in Mercer’s Talent business, “The immediate implications for companies and employees will depend on their circumstances. In the short term, companies should be analysing exposure they have to the UK and Europe in respect of their workforce’s organisational profiles and their reward plans. While we don’t know yet what restrictions will be imposed on, say, the free movement of people, it is evident that political, economic, legislative and market uncertainty is unlikely to clear any time soon. Strong employee communications will be critical for companies over the coming months.”
Impact on pensions
According to Deborah Cooper, Partner at Mercer, “There will be continued market volatility impacting on the health of the UK’s defined benefit (DB) schemes as UK, European and global markets weigh up the likely implications. Increased volatility in gilt yields and sterling may have further impact on pension schemes. Trustee boards should already be monitoring events closely and should consider the impact of future market moves on scheme funding positions, sponsor covenants, as well as their financing and risk management strategies. Boards should review exposure to currency risks and how that might affect future investment strategy and current funding levels.”
According to Dr. Brian Henderson, DC & Financial Wellness Partner at Mercer “This is going to be a more turbulent time for defined contribution (DC) members looking to provide income from their retirement savings. Many people could now see their financial health and their pensions suffer some short-term volatility. Those planning for the future may have to scale back on their aspirations; long-term savers may be able to navigate the choppy waters, but those with more immediate needs may find themselves taking in water. Anyone seeking security, whether it’s coping with debt repayment or perhaps seeking an income for life may find themselves particularity vulnerable.”
Impact on company workforces and pay
“It’s likely that restrictions will be placed on EU workers within the UK workforce so companies should review their workforce plans”, says Mark Quinn, Head of Mercer’s Talent business in the UK, “particularly retail, leisure and services employers who employ a large number of EU citizens. New bi-lateral agreements may be required for those organisations off-shoring from the UK into the EU and we will also have to wait and see if non-UK multi-nationals will think it still appropriate to have their European headquarters remain in London.
“UK companies will have to gear up for likely change in UK employment and labour market regulation and certain elements are likely to become more favourable to employers, although this may well create a more turbulent employee relations environment. The UK banking sector is likely to seek changes in banking regulation, particularly as it affects pay. We may see an end to the bonus caps and other EU-sponsored controls although the Financial Conduct Authority and Prudential Regulation Authority will want to ensure that the direction and spirit of the Financial Standards Board’s requirements continue to be fully met in the UK.
“The restrictions and changes in the UK labour market for key skills at both executive and employee levels will impact on competitive pay levels in the UK and, of course, there may be an increase in costs for UK workers living and working within the EU, so companies will have to respond to that.”
Impact on health and employee benefits
According to Simon Griffiths, Principal in Mercer’s Healthcare business, “Companies should be considering the impact of an end to reciprocity on state healthcare costs for foreign nationals across member states. This could lead to a lack of state accessible primary and secondary care for expats – a concern for mobility teams. We may also see an increase in bureaucracy for expat workers including the compulsory company healthcare provision. We also need clarity on how personal data is managed and stored by multi-nationals as separation occurs.”