How will Brexit affect my retirement pension?
BREXIT has divided families and communities, but one thing they are all agreed on while watching politicians over the last two weeks, is that it's no more than a scene from the Muppet show. Agreement at last.
Having saved through private and government pensions, you'll be keen to know how Brexit, and in particular, a poor or no deal Brexit, will affect you.
The UK government has stated that UK nationals living in Europe (around 1.3million) will continue to receive their state pension. The question is, will they continue to benefit from increases, or will their incomes dwindle away by inflation?
In plain English on their website they state they will continue to increase pensions through 2019 and 2020, but ‘would wish to continue increasing pensions' as they ‘would hope that reciprocal arrangements are in place'. Hopes and wishes. I'm bursting with confidence.
Much will depend on whether or not these are agreed in reciprocal arrangements with the EU, but on the bright side they have over a week to sort that out, with nations they have not been overly complimentary about.
Currently the triple lock applies to all of us, but there is concern over its ongoing viability after the Brexit impact. The triple lock is an agreement to increase pensions in retirement by the highest of earnings growth, inflation or 2.5 per cent.
Clearly a vote winner for the elderly, it was under threat in the last manifesto to be decreased to a double lock, but that was dropped under the ‘supply and confidence' arrangement with the DUP.
For those UK nationals living in the EU, the lock is only agreed via a deal and a reciprocal arrangement. We don't have that. Secondly, with the inevitable impact on the UK economy from Brexit, pressure on taxes could strangle the government's ability to pay the triple lock.
Let's remember, some UK nationals living in Canada and Australia do not benefit from these increases and their pensions are frozen.
Private pensions: Without a favourable Brexit agreement, a UK pension provider will no longer be allowed to pay pensions to anyone living in the EU. They would simply have to stop paying as the provider would face a fine for doing so. Instead they would have to go to the trouble of setting up an EU subsidiary with an EU bank account, or deal with a European counterpart.
Furthermore, in the event of a no deal, sterling to euro exchange rates would nose dive, so the buying power of the currency would decimate retirement pensions for ex-pats.
A pensioner transferring £1,000 a month pre Brexit in 2015 would be receiving €1440, but at sterling's low in 2017, this would have dropped to €1,079. If rates fell further and increases stopped, it's hard to see how those UK nationals could afford to live, and they may have to return.
Falling UK profits and low interest rates have a direct impact on a company's ability to fund pensions, and indeed such schemes might have to close. We have already seen UK companies trying to offload their risk by offering incredible pension transfer values out of occupational schemes to lower their risk.
For example, a defined benefit scheme offering £10,000 a year last year could have received a transfer value of £210,000. That soon rocketed to £241,000.
As the returns from gilts and bonds dropped, this greatly impacted the ability and cost to fund such pension schemes. The cost of occupational schemes has closed companies in the past.
Those in personal pensions where the future value of the pension is dependent on fund performance and stock markets, will know the impact of all of the above on their share prices.
It is very hard to see a rosy, short to medium term picture for UK domestic share prices in the event of a no deal and that will directly punch those values.
However, a deal or no Brexit will have the reverse impact.
:: Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a question on the impact of Brexit on your money, call Darren McKeever on 028 6863 2692, email firstname.lastname@example.org or visit www.wwfp.net.