It’s becoming harder and harder to have a conversation these days without the subject of Brexit cropping up at some point. What it does reveal, however, is a lack of understanding of how pervasive the EU really has been. People assume Brexit will affect almost everything directly whereas, in fact, it will probably only have a secondary effect.
Pensions are not isolated from Brexit. The ongoing roll-out of Automatic Enrolment has widened the net massively in terms of who is now required to be in a pension scheme. People are now caught up in a system they never planned on being part of. With clients in the hospitality industry amongst others, we are more frequently being asked “How will my pension be affected by Brexit?”.
And the simple answer to that is we don’t know. Like all other matters Brexit, we are no clearer on what the position is going to be than we were on June 24th 2016.
That said, I believe it unlikely that the structure underpinning our pensions systems in the UK, public and private, will change. As alluded to above, pensions, like many other matters, are not a direct result of EU rules. Yes, all EU countries operate some form of pension system, but these have evolved independently with no attempt yet by the EU of harmonisation.
The UK approach, and one that is becoming increasingly more likely for other EU countries in future due to shared demographic trends i.e. everyone living longer, is for a State pension that provides little more than the absolute basics to maintain life that is then topped up via a private pensions market where people have more control over their funds. Many EU countries have offered more by way of State provision, but this is becoming unsustainable due to cost. Greece is the prime example.
Another example of the lack of pension harmonisation across the EU is the lack of structures in place to make moving pensions across national borders a relatively simple process.
Many UK schemes simply refuse to transfer benefits in from overseas schemes. And if you want to transfer your UK pension abroad, you are faced with a degree of complexity normally reserved for University Challenge contestants. For the vast majority of people, and certainly those whose exposure to the UK private pension system is a direct result of Automatic Enrolment, the only choice on leaving the UK is to leave their pension behind and claim from it from abroad.
Pensions, in short, simply do not travel well. They are national entities enshrined in local legislation and they do not cope well with other people’s rules. And, as a result, the rules that underpin them are unlikely to be changed as a result of Brexit. Probably!
That is not to say pensions will be immune from Brexit. Our economic future, as well as the effect on businesses in which our pensions are ultimately invested, will inevitably be affected by whatever deal our politicians manage to obtain for us. If trade barriers go up and business becomes more expensive to transact, investment returns into our pension funds will inevitably fall.
But don’t expect Brexit to cause a fundamental shift in how we plan for our retirement. That remains an area of personal responsibility that we must all get involved in.
Peter Murphy Dip PFS