Will my private pension be worth less after Brexit? Good question. The answer may be different for people with different pension plans.
Note: For the purposes of brevity, when I say pension in this article, I am referring to private pensions, pensions you are funding with contributions throughout your working life, not the state pension.
If you are already receiving a pension through an annuity that you have already bought, it will be designed to provide you with a fixed income for a period of time, hopefully the rest of your life.
It would seem unlikely that Brexit, or the exit of the UK from the EU, should have much if any effect on your annuity income.
Workers Saving Towards a Pension Pot
For those still saving towards a pension pot, the story is somewhat different. And it really depends how far away you are from retirement or from cashing in your pension pot to buy an annuity.
Private pensions, in general, are invested throughout your working life in a series of funds. Different pension schemes will invest in all sorts of financial products depending on the provider and your requests when you started saving.
It is fair to say that most pension pots are invested, to a greater or lesser extent, in stocks and shares.
They try to play the stockmarket with your investment funds, looking at ‘safe bets’ and perhaps the odd riskier option to attempt to get you a decent return on your investment. After all, it is in their interests to get you a decent return because they are likely charging your pension pot an annual fee based on a percentage of its value.
So how does Brexit affect the value of your pension?
Stockmarkets like certainty in the market. Markets like it when it is boring. When things are just ticking along, the values of shares go up and down gradually and pension providers can manage the risk by moving money around from place to place.
Stockmarkets hate uncertainty. When massive shocks are applied to financial systems, values drop like a stone.
Brexit, or even the prospect of Brexit, has already caused the largest drop in share prices in most peoples living memory.
That is bad for your pension savings.
It is likely that at least 10% has been wiped off the value of your savings pot if it has been invested in the wrong stocks and shares.
So what does it mean to me?
Workers in their 20s, 30s, 40s, 50s and early 60s
OK, so assuming you are at least 5 years away from retirement you will be continuing to save monthly into your pension pot.
The fact that your pension pot is worth less than it was at the start of 2016 is unfortunate. But you have time on your side.
Markets go up and down. While the current down is practically unprecedented, at some point the freefall has to stop.
Stockmarkets will readjust and over the years the values of stocks and shares will recover.
No-one knows where the new level will be. It could be lower than before, around the same, or maybe it will be higher.
But whatever happens, you are not needing to use that pension pot right now to buy an annuity, so it’s a case of hoping things turn out OK in the long term.
Workers at Retirement Age
If you have recently retired, or are due to retire this year, the prospect of Brexit has thrown a significant, ugly spanner in the works for you.
There couldn’t be a worse time to be buying an annuity what with stockmarkets showing massive drops in value.
Right now, nobody knows when or how the stockmarkets will settle. And anyone that tells you otherwise is either a fortune teller or a spoofer.
Get yourself an Independent Financial Advisor. Check for local recommended independent financial experts and ask them to review your finances and your pension pot.
It might be that your scheme has been protecting you in the years leading up to retirement by transferring your pension pot into safer investments. But everyone is going to have a different scenario. So let them work out where you are financially and assess your options carefully.
You might be able to defer buying an annuity for a year or two, and who knows what the stockmarkets will be like then.
Don’t rush into decisions you are not sure about and try not to panic. Yes, things are in a really bad way right now with the prospect of Brexit and your pension may suffer because of it. Hopefully this current pain will only be temporary.