Different Brexit Scenarios – The terms of any Divorce?

Here at Pensions Management, we will be remaining professionally neutral about Brexit, but we do intend to comment on some of the likely implications for a vote to exit the EU, if only to add some clarity and detail where we can.

In this article we highlight what are considered to be the three most likely exit scenarios in terms of trade and the Single Market should the vote be for Brexit.

As you would expect, there is an article in the EU Treaty – article 50, to be precise – which provides for a time period of two years for the exit terms to be negotiated and agreed. After all, having been a member since 1973 (there was a referendum in 1975, where the ‘stay in vote’ was 66%), it simply isn’t the case that in the event of a vote to leave the EU that the UK can simply walk away.

The following are the three main Brexit scenarios:

• A Soft or gentle negotiation

In this scenario, the negotiations for exit would leave the UK in a similar position to Norway – outside the EU, but combining a customs union with the Single Market.  This position would maintain the existing benefit of the UK’s preferential access to EU markets, but the UK would have little or no influence over future trade deals and regulations that the EU legislates over. However, most commentators expect that the UK would still attract Foreign Direct Investment.

• An intermediate version

In this scenario, which would be similar to the Swiss and Turkish arrangements, where the UK would opt for either a Single Market OR a Customs Union on its own, or for some sort of bilateral accord.

It is thought that this scenario would require some duplication of regulations and because the UK would lose the existing EU benefits of freedom of movement and freedom of establishment, it could undermine the UK’s attractiveness for Foreign Direct Investment.

• A Punitive version

This scenario would most likely not involve a preferential trade agreement with the EU and the establishment of a Free Trade situation, with agreements being made under World Trade Organisation rules.

The risk of this outcome is that the EU might seek to punish the UK in order to preserve the benefits to the remaining members of EU membership.

At this stage, it is not certain what type of divorce those in favour of Brexit would want, or indeed whether the EU would negotiate precisely the type of divorce that the UK would want in the event of a vote for Brexit. Which means, of course, that it is impossible to predict what effect Brexit would have on pensions in the UK. Watch this space for more comments.