What does Brexit mean for your pension?
As the first member state to leave the EU, we aren’t able to follow a template. Britain’s next steps are exciting to some, horrifying to others.
There’s a lot to wonder about.
We won’t try and address all the possible concerns, though - we know our place, so we’ll stick to what we’re good at. (If you’re wondering, that’s pensions and savings.)
In the weeks leading up to the referendum, the Remain campaign warned of a financial crisis if the UK left the EU. With the result in, all eyes turned to the stock market and the strength of the pound.
It all dropped. The pound went to its lowest level in 30 years and well over £100 billion was wiped off the FTSE 100. Many people were almost certainly worrying that a recession was imminent.
As scary as it looked, the truth is that was always expected to happen. A vote to leave the EU means uncertainty, so volatility was soon to follow. What’s happened since is a rebound in the markets, with the FTSE 100 (the UK stock of the biggest 100 companies) about halving its losses within a very short space of time.
Is everything on the up then?
Stock markets never go up all the time with no blips, and that is still true now. Although there has been some recovery as the day has gone on, we can be pretty certain that it’s going to be a bumpy ride for a while.
How long will the recovery take?
The campaigners for both Remain and Leave tried to persuade the nation that they could predict the future. Or at least, that’s how it came across.
Unfortunately, no one has a crystal ball. The UK has made a decision and now begins the process of untangling itself from the EU and arranging new trade agreements. It’s possible the uncertainty will continue for years, until things settle down and everyone has a better idea of what the future holds.
Will the stock markets recover?
Historically, stock markets have always gone up in the long term. Short-term fluctuations occur all the time, and this is a very good example of a short-term fluctuation. The key to keeping your investments (including your pension) safe is acknowledging this volatility happens – and that things improve over time – and spend as much time invested as possible. Removing your money from the markets can mean sustaining heavy losses, which is the last thing you want to happen.
What about the State Pension?
At the moment, nothing is changing with the State Pension. Unlike private pensions, it’s an income the government pays to citizens once they reach a certain age. Unlike private pensions, the payments are not affected by the stock market or other investments. The previous government also introduced a ‘triple lock’ on the State Pension, to protect its value against a rising cost of living. The way it works is quite simple: each year, its value increases by the higher of average earnings, inflation or 2.5% - which means, for example, even if we enter a recession, the State Pension will grow by no less than 2.5% a year.
The truth is that while there’s a lot of uncertainty ahead, the stocks markets have historically always gone up and a bumpy ride is simply the nature of the beast.
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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new
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