Will Brexit affect my private pension?

With Britain due to leave the EU in March, it’s vital to consider the potential impact of Brexit on your retirement savings.

Although leaving the bloc is unlikely to change the way you currently make contributions into your personal or occupational pension, the resulting market volatility could have a significant effect on the value of both your pension pot and your retirement income.

Here, we consider what Brexit might mean for your pensions – and what you can do to help protect your savings.

What Brexit could mean for personal and workplace pensions

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 receive.

But it isn’t just those with defined contribution pensions – where the fortunes of the scheme are linked to investment market performance – who could be affected. When financial markets suffer, deficits in defined benefit or final salary schemes also increase. Funding deficits mean a scheme’s liabilities outweigh the value of its investments, so trustees will need to look carefully at the viability of their funding arrangements and explore strategies to help them mitigate investment risk.

Defined contribution scheme

If you have a defined contribution scheme, it’s essential to review where your pension savings are currently invested. If you’re nearing retirement, you might want to consider moving some of your retirement savings out of equities into lower-risk investments like bonds to help avoid the potential of your pension pot taking a hit before you retire. Many company schemes will automatically do this on your behalf in a process known as ‘lifestyling’, so check whether your provider does this.

It’s also important to ensure your pension investments are properly diversified across a wide range of assets, sectors and geographical regions. If one asset, sector or region suffers a downturn, returns from more successful investments could offset some of your losses.

If you’re not sure whether the funds your pension invests in are suitable for you based on your approach to risk, seek professional financial advice.

What if you’re already taking an income from your pension?

If you’re currently drawing an income from your pension whilst leaving it invested, you must think carefully about the impact of volatility. Taking money out during periods when stock-market volatility is high means you’ll have to sell more units to achieve the same payments – thereby using up your retirement pot more quickly.

Again, seek professional financial advice if you need help establishing whether the amount of money you are currently taking out of your pension pot should be adjusted during volatile periods.

Brexit and the state pension

The UK state pension is currently uprated in line with the government’s triple-lock commitment, which requires the state pension to rise by whichever is the highest of inflation, wage growth or 2.5%. From April 2019, the maximum new state pension you’ll be able to receive will increase from £164.35 per week to £168.80. To qualify for this amount, you’ll need to have 35 years of national-insurance contributions.

What happens to my pension if I live abroad?

Around 1.26m recipients of the UK state pension are resident overseas, according to government figures, with around 474,000 based in the EU.

Any uprating in the state pension is passed on to British recipients abroad, but only in European Economic Area countries, or in countries where there is a reciprocal social-security agreement. The British government intends to continue uprating state pensions for expats in the EU after the UK leaves. National-insurance contributions made while abroad will continue to count towards the state pension.

In the event of a no-deal Brexit, the UK would probably have to negotiate reciprocal deals with each of the 27 EU member states. Failure to do so could mean Britons living in the EU might no longer benefit from state-pension increases.

The importance of advice

Pensions can be complicated – even more so when you throw the uncertainty of Brexit into the mix.

However, making sure your retirement savings are invested in a blend of different assets can help provide some defence. A financial adviser can talk you through all the available options and help you prepare your pension for whatever lies ahead.

Book a no obligation review and help ensure your pension is ready for Brexit 

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise.  You may get back less than the amount invested.

An investment in equities will not provide the security of capital associated with a deposit account with a bank or building society.

St. James's Place representatives represent only St. James's Place.
St. James’s Place Wealth Management is registered in England, registered no. 4113955, St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire, GL7 1FP. Telegraph Media Group is an Introducer Appointed Representative of St. James’s Place Wealth Management plc, which is authorised and regulated by the Financial Conduct Authority.

The above article was created for Telegraph Financial Solutions, a member of Telegraph Media Group Limited. For more information on Telegraph Financial Solutions, click here.