With the deadline looming for Theresa May’s Brexit deal, the likelihood of the UK crashing out of the EU is looking more likely than ever. But what would a “No Deal” mean for your pension? The answer depends significantly on whether you will be retiring in the UK or overseas, with pensions secretary Esther McVey stating that “without a deal, pensions will face uncertainties at home and abroad”. Unfortunately, protecting the livelihoods of British pensioners living abroad does not seem to be high on the government’s list of priorities. The most vulnerable expats are the ones living in the EU, however, those worldwide are also at risk.
British pensioners that have retired abroad currently receive payments from private pensions into bank accounts that are set up in their country of residence. This is possible due to an arrangement between the EU and the UK, known as ‘passporting’. However, British pensioners living in Europe could see their income interrupted or stopped entirely. If there were to be a no-deal, this reciprocal arrangement would be lost, with the government stating that UK citizens living in the EU “may lose the ability to access existing lending and deposit services, insurance contracts and annuities”. A possible workaround would be for UK pension providers to make the payments into a UK bank account, which can then be transferred to your account overseas. However, this presents a few difficulties such as tax and administration.
In addition to this, a good pension essentially relies on a strong economy. Whether it is the strong currency, the taxes to pay state pensions, or the company profits to fund returns for investors, a strong economy forms the backbone of a good pensions system. Investors do not like uncertainty, which has been exceedingly detrimental to the UK’s economy after failed Brexit negotiations. If the UK were to crash out of the EU, the pound sterling could weaken, leaving pensioners with less money overnight. However, this would just be the beginning. The Bank of England has estimated that the worst-case scenario for a hard Brexit would lead to a 25% decrease in the value of the pound sterling and a 30% decrease in house prices by 2023. Without investment, the companies that form the backbone of your pension’s portfolio may perform poorly or have less profit from which to pay dividends, reducing your retirement income.
If Theresa May is unable to piece together a Brexit deal, the UK will crash out of the EU in March. Without anything to keep the supply lines running, it is clear that this would be catastrophic, leading to disruption in all sectors of the British economy. Both private and state pensions are vulnerable for those that are retiring abroad. Unfortunately, little can be done for your state pension. Private pensions, on the other hand, can be invested individually, or even moved to your country of residence. Talk to a qualified advisor today to discover your options.