Will Brexit shrink my pension?
How quitting the EU could affect your retirement
With the EU referendum looming on June 23rd 2016, many retirees want to know how a Brexit could affect their hard-earned money.
Younger voters need their pension savings to grow, whereas older voters wanting to cash in their pensions need to make sure they can get a good deal that will provide for their retirement. And pensioners who have retired abroad need to know what happens to their income.
The risk to our savings
Whilst we are working the government have encouraged us to save money into a pension. Something we will rely on when we come to retire.
With the defined benefit pensions dying out where we had a fixed amount, many of us are now left with a defined contribution pension where the amount isn't certain.
For many still saving into a pension, the biggest threat from Brexit is a period of financial instability.
Over the long term, investors can experience periodic market falls. Generally, the wrong thing to do when markets fall by a reasonable margin is to panic and sell out of the market.
Age is a factor
If you're nearing retirement and your savings are affected you may not have time to recover.
When you can finally cash in your pension from the age of 55, many people will try to set up a regular income and the simplest way to do this is to purchase an annuity using your savings.
If interest rates increase after Brexit, this could mean a boost to annuity rates. Though if your savings are affected then you may have less money to buy an annuity in the first place.
Government warns Brexit is a bad idea
The government has repeatedly warned pension pots will be hit if the UK votes “leave” on 23 June.
The Treasury's analysis estimates that those with an additional pension worth £60,000 could expect to see its value drop by £1,900.
Someone aged 50 can expect to be worse off by somewhere between £223 and £335 per annum.
Will sterling collapse in value if we exit?
The short-term impact of a “Brexit” vote is expected to be negative for Britain's stock market, as well as the pound.
There is almost universal consensus that sterling will fall in value if the country leaves the EU. The debate is by how far and for how long.
- Goldman Sachs, a keen supporter of Britain remaining in the EU, said in February that the pound would plunge by up to 15%-20% on exit.
- Pimco, the world’s largest bond fund, predicts the fall will be more like 5%-10%.
- Mark Carney has said market indications are that 'were the UK to vote to leave the EU, sterling's exchange rate would fall further'
Provided you are taking a long-term view with your investment strategy, you should not be adversely affected in the long run if you don't panic.
If you have any concerns about your investments please give us a call.
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