Brexit will affect everything from food on supermarket shelves to the fight against terrorism and so it’s not surprising that our pensions will also be impacted. The most obvious factors are the performance of the UK and EU economy and, in turn, the reaction of the stock markets where a large proportion of our pensions pots are invested.
In addition to this, though, there are certain pensions rules regulations that are prompted by or influenced by EU directives. Meanwhile, any British national with a pension based in the UK who’s been living and working in other EU states or is hoping to retire somewhere such as France, Italy or Spain will also be keen to know how the UK’s departure from the EU will affect their pension.
The state pension is covered by international regulations that co-ordinate social security payments to people moving around the EU as well as Switzerland and countries in the European Economic Area (EEA) to remove any barriers to free movement of labour. How long you’ve worked for and what you’ve accrued is currently coordinated through the International Pension Centre.
On the political stage the EU and UK negotiators have reached “a convergence,” on this issue and currently it looks as if the state pension arrangements for British nationals living in other EU countries will be largely unchanged, according to the Pensions and Lifetime Savings Association (PLSA) – and that includes uprating. However, all this depends on London and Brussels reaching an overall agreement on Brexit by March next year.
The Brexit vote in 2016 prompted considerable volatility in the financial markets and a fall in the value of the pound. However, stock markets have experienced generally strong returns since then and the weak pound has boosted exports of UK based companies. Although our trading and financial relations with the EU remains a fiercely fought subject for political debate, many observers believe that if the UK maintains close relations with the EU disruption will almost certainly be far less than if we have to fall back on World Trade Organisation (WTO) rules.
When it comes to regulations for private pensions, as the House of Commons Library noted in a report in March last year, “the design of pension systems is largely the responsibility of Member States.” However, at an EU level this legal framework includes establishing market for occupational pensions and establishing the minimum standards of protection. It also involves basic rights for pension scheme members in the case of insolvency or the sponsoring employer. Finally, anti-discrimination rules such as the rights of same sex partners are also covered.
Despite this emphasis on the member states the PLSA wants access to investment opportunities and the ability to use service providers in the EU in order to keep costs down. “UK pensions law is extensively intertwined with EU law, regulation and court rulings,” it says in its report Brexit and pension schemes: Getting the right deal for Britain’s savers. It adds: “There is no need to dismantle this framework – and very little to gain from doing so. In fact, the overwhelming message from PLSA members is that they do not want major regulatory upheaval.”
Not surprisingly the PLSA wants to see a strong economy, the right regulation and a strong financial services industry. This third requirement could be the most challenging as many believe that it requires the continuation of “passporting,” which allows Firms that are authorised in an EEA state to carry out activities in any other EEA state.
The Association of British Insurers (ABI) is also pressing for a regime that includes minimum barriers. As well as passporting, among its demands are close mirroring of the EU data protection regime to avoid difficulties and complexity and a migration policy that allows the industry to employ highly skilled professionals from both within and outside the EU.
It is possible to move your pension from one country to another through Qualifying Recognised Overseas Pension Schemes (QROPS). These are non-UK schemes, approved by HMRC, into which you can transfer a pension without triggering unauthorised payments charges or sanctions. The idea of QROPS is to enable people who’ve emigrated to take their pension pot with them. However, regulations around these schemes have tightened recently and you should talk to your Independent Financial Advisor (IFA) or pensions expert before making any decisions here.
With pressure from professional bodies, financial institutions sand other experts for minimum disruption it seems fair to assume that pensions regulations and protection will change little immediately after Britain leaves the EU, unless the withdrawal negotiations collapse. Even in this situation, as in the other areas, the UK could, in theory, continue with its current pensions regulatory regime and adopt EU standards where convenient.
However, companies, pensions providers and savers should stay tuned to news about the pensions and financial services sectors emerging from the ongoing negotiations so that they can act quickly.
Whatever the effect Brexit has on the economy of the UK – and other economies further afield – the golden rules of investing apply: don’t panic but take a long term view, make sure that your portfolio is diversified and check that the level of risk/return on your investments as suggested by your age and investment goals is appropriate for you.