Brexit and My Pension
Nowadays, Brexit is the main topic of conversations when watching the news or reading the papers. One question that must be being asked frequently is “How will Bexit affect my Pension?”
The answer to the above question depends on what type of investments you are holding in your pension.
Many people’s workplace personal pensions have assets invested in companies that form the FTSE 100. Although UK based companies, they are multinational in their operations and derive earnings from overseas, in multiple currencies. The major issue they face is from fluctuation in the value of sterling.
When the country voted for Brexit back in 2016, the pound immediately fell. You will have noticed foreign holidays becoming more expensive. This fall in the pound causes the FTSE 100 index to rise. Why? Because those foreign earnings are now worth more. UK Investors made substantial gains purely based on the fall in the pound.
Private pensions should remain largely unaffected if managed properly.
John Husslebee Fund Manager at Liontrust says
“While Brexit and other political developments increasingly dominate the news, we would stress that this is largely short-term noise while pensions are typically a long-term investment.
Without wanting to downplay the situation, market historians tell that politics rarely has a long-term effect on investment performance. We would also stress the fact our portfolios are globally diversified and not dependent on the success (or otherwise) of the UK economy. We are more tied into the global economy and in that context, the UK makes up just over 3% (and around 6.5% of the global stock market), so Brexit – however it plays out – is unlikely to be a significant driver.
While it would be complacent to ignore this situation outright, we continue to believe our portfolios are driven by the path of global economic growth and global inflation.
To date, the ebb and flow of our future relationship with Europe has mainly been seen through the strength or weakness in the pound as well as gilt yields. Weakness in the pound has clearly supported UK companies, typically those listed in FTSE 100 with significant overseas earnings. Of course, currency movements can work for or against us, and we are not attempting to predict these notoriously unpredictable markets.
Whatever happens in the next few months and years, making snap investment decisions based on politics has rarely proved a successful strategy. As we continue to stress, the evidence of history points to the importance of investing for the long term and staying in the market through the ups and downs – and that remains the case whether we get soft Brexit, hard Brexit or no Brexit at all”
How are Pensions Managed?
Many pensions are managed by ‘Active’ Fund Managers, which means they freely move in and out of different assets depending on factors including the economy. These same Active Managers watched the economic issues around Brexit and positioned their investment portfolios accordingly. They could take advantage of short term market falls to buy assets at better value, then hold them with a view to selling when values have risen, making a gain for your pension fund.
‘Passive’ or ‘Tracker’ funds within pensions, while popular because of their perceived lower cost, may be harder hit through these more volatile economic and market conditions. This is because they simply follow an index (such as the FTSE 100) and have no experienced fund manager making changes because of what’s going on in the world.
While nobody can truly predict all the permutations of Brexit, its just one event in the timeline of your pension planning. During your working life, your needs, pension legislation and investment markets will change. Seeking regular consultation with a Financial Adviser will help you plan effectively for the future.
Bread and Butter Advice offer friendly, regulated, financial advice. Whether you are building or drawing your retirement income, we can help. For a free consultation with one of our Financial Advisers, please call us on 0800 0151 069 or you can e-mail firstname.lastname@example.org