Will Brexit affect my private pension?
72 days until Brexit.
It’s vital to consider the potential impact of Brexit on your pension pot as the resulting market volatility could have a significant effect on the value of both your pension and your retirement income.
We are recommending everyone to ACT rather than REACT. If you ’React’, that would mean you would be making an impulsive decision and most likely with limited options. But if you ‘Act’ then your decision can be carefully planned based on your objectives with a wider choice of options, minimising the risk involved with Brexit.
What Brexit could mean for personal and workplace pensions
One key point to take into consideration is the reason the QROPS were created in the first place.
A Qualifying Recognised Overseas Pension Scheme, or QROPS is an overseas pension scheme that meets certain requirements set by Her Majesty's Revenue and Customs (HMRC). A QROPS must have a beneficial owner and trustees, and it can receive transfers of UK Pension Benefits. The QROPS programme was part of UK legislation launched on 6 April 2006 as a direct result of EU human rights requirements of the freedom of capital movement. Does coming out of the UK mean that this option will be taken away from you?
A QROPS can also offer protection from the risk of a no-deal Brexit “cliff-edge” for pensions, where some UK providers will lose the legal right to pay personal pension benefits to expatriates (unless new post-Brexit arrangements are agreed). Funds already transferred to a QROPS will be unaffected.
A closing tax-free window?
As Brexit eliminates Britain’s current EU commitments – including freedom of movement for capital – the Treasury gains more scope to recoup revenue from UK nationals abroad. Many speculate this will prompt the UK government to impose widespread penalties on pension transfers, even within the EU.
Another concern is that they could change the rules to make it harder to take advantage of today’s high transfer values for ‘defined benefit’ (final salary) pensions.
The UK government has offered reassurance that expatriates will keep the right to make overseas transfers, whatever happens with Brexit – but it has stopped short of making any tax promises. According to economic secretary to the Treasury, John Glen:
"Whether or not these transfers will be exempt from the overseas transfer charge once the UK leaves the EU is dependent upon the terms of future exit agreement between the UK Government and the EU."
The biggest impact Brexit could potentially have on pensions in 2019 is on the investment performance of pension funds. Many UK pension funds hold a large proportion of their assets in the UK economy; if the economy falters following Brexit, this could affect the pensions people will receive.
But it isn’t just defined contribution pensions – where the returns of the scheme are linked to investment market performance – which could be affected. When financial markets suffer, any deficit in defined benefit or final salary schemes could also increase. With the pension deficit standing at ￡218.8 billion this could cause serious problems if it increases even more, with many more pension schemes following the likes of Carillion, BHS and British Steel into the Pension Protection Fund.
73% of UK defined benefit schemes are currently cashflow negative meaning that they are paying out more than they are receiving (due to the majority of them being closed to new members) so no surprise that 390,000 people have transferred out with the total amount to date standing at ￡60billion pounds. With transfer values at a record high due to a combination of trade tensions and Brexit risks it has never been a better time to see what your pension scheme is offering you and to lock in the record values.
There are just 72 days until the biggest political decision of our generation, whatever your thoughts are on what is going to happen, there will be changes. Do you really want to leave your retirement to chance in all this uncertainty? Or do you want to take control whilst you can and plan for the retirement you have always wanted? With the average case taking anything up to 3 months to transfer now is the time to take a look.
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