Brexit’s Impact on Pensions

With the Brexit just a few months away, it seems the economic and political impact of this exit is still largely unclear. Savers, in particular, are concerned about the impact this exit will have on the value of their pension pots.

Earlier this year, the Aegon Retirement Confidence Survey showed that nearly half of all British savers (42%) believed Brexit would have a negative impact on their pension pot (Aegon, 6th June, 2018). Only 5% of the respondents to that survey said Brexit would help their pension pot grow.

After the turmoil this week and growing chatter about a no-deal Brexit, it seems likely that pensioners have lost some sleep. According to PwC, the ongoing negotiations have already had an impact on financial markets which has increased the deficit for defined benefit schemes and lowered the projected outcomes for defined contribution savers (PwC).

While the government tries to cover all corners before the exit date, proposed rules in the event of a no-deal Brexit are adding to the concerns. The Department for Work and Pensions (DWP) has already proposed draft regulations that would require pension schemes to invest in "UK regulated markets" rather than the current "regulated markets", which could mean a lot of schemes will technically be breaching the law starting from March 29th, 2019 in the event of a no-deal Brexit (James Phillips, Professional Advisor, 12 Nov 2018). That’s just one of the many complex regulatory and economical uncertainties as the UK-EU negotiations enter their end-game over the next few months.

According to a report by the BBC’s personal finance reporter Kevin Peachey (25 August 2018) the 220,000 British citizens living in the EU will continue to receive their state pensions, however the long-term value of these pensions hinges on the nature of the final deal between the two sides. Meanwhile, private pensions will face increased regulatory hurdles and considerable uncertainty over the coming years.

Pensioners and older savers bracing for retirement in the near-term should watch the negotiations closely to see if there’s any clarity over the next few months. However, younger savers have the luxury of time to see how Brexit affects the long-term prospects of the British economy. By the time savers in the 30’s and 40’s are ready for retirement, all these regulatory issues will most likely be ironed out and the size of their pension pot will depend on the performance of UK interest rates, Gilt yields, UK equities and the pound over the next few decades.

Regardless of age, all savers should probably speak to a registered advisor to ease their concerns about the direct impact of this once-in-a-generation political transition.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.