Brexit vote puts pension schemes further at risk - Is It time to review yours?
Written by Sam Barrie on August 22, 2016.
There have been a number of unwanted consequences of the surprise decision by the British public to leave the EU in June. One which could very directly affect pension holders is the fact that in the immediate aftermath of the result, the UK’s Defined Benefit (DB) pension scheme deficit increased by £80bn, bringing it to an unfeasibly large £900bn. For those invested in these schemes, this means facing the possibility of less income than expected when they retire.
Experts are keen to point out that DB schemes are long-term investment strategies and the hope is that as the Brexit landscape gains some clarity, the markets will even out and these losses should be recouped. However, that clarity doesn’t look like it is coming any time soon and looking to the long term is little comfort to employees who are retiring imminently.
Pension funds were in trouble long before the Brexit vote and this is just one more fly in the ointment. Poor fixed interest running yields and low interest rates have been huge challenges for pension fund managers. The demise of retail giant BHS was at least in part caused by the £571m black hole in its pension fund. Employees were compensated by the Pension Protection Fund, which could have its work cut out over the next few years. A study by the Pensions Institute has estimated that one in six final salary schemes are at risk with 10% facing insolvency in the next five to ten years.
To ensure that your assets are protected, it is crucial for anyone invested in DB schemes to review their situation and consider whether a transfer to either a SIPP (UK based) or a QROPS (Overseas Pension) would be advisable.
The good news for anyone wanting to transfer a pension is that cash equivalent transfer values (CETVs) - the cash sum the trustees of a pension fund will give you if you wish to transfer your pension - are currently at the highest level they have ever been. This is due in part to the vulnerability of many DB schemes but also due to historically low gilt yields which declined even further after the Brexit vote and further still after the recent fall in interest rates.
A transfer is not always the best course of action so it is important to take sound financial advice before making this big decision. If you would like a no-obligation objective review of your situation with a certified professional, I’d love to hear from you.