Brexit: If you're in receipt of a UK pension, should you be worried?
Currency fluctuations are really the only thing that will affect your monthly cheque, so there's no need for immediate action, writes Aisling Kelly
Published 03/07/2016 | 02:30
The Brexit vote has seen value wiped off many individuals' pension pots. In light of this and taking into account the continuing market uncertainty, what should pension scheme members do now?
Defined Contribution (DC) schemes
For most people in Ireland who are providing for their futures, recent market movements should not be seen as a cause for immediate panic. Pensions are a long-term investment, so individuals should expect some drops over the period to retirement, along with some years of higher returns.
The key decision for younger members is, as ever, that they make adequate retirement savings and choose an appropriate investment strategy that will provide returns at an acceptable level of risk.
Individuals with more than 10 years to go before their retirement should perhaps review their fund choices and ensure they are in line with their objectives, but should not rush to make any changes solely as a result of recent events.
The recent volatility may be much more of a concern for those closer to retirement.
The exact impact will depend on how a member's funds are currently invested and what benefits (lump sum, annuity or continued investment) they intend to take at retirement.
For example, if a member is heavily invested in equities and expects to take a large portion of their fund as a lump sum, they may end up with much less than expected.
If individuals close to retirement aren't sure of their options, now may be a good time to seek independent financial advice before making any necessary changes.
Defined Benefit (DB) schemes
The effects of the Brexit vote may worsen the statutory solvency position for DB schemes, putting increased pressure on employers to fund them.
Some may view Brexit as a "final straw" and may close as a result, meaning members may find that some (or all) of their pension will be provided on a DC basis in future.
Any such changes would be communicated in advance, so most DB members should simply monitor the situation at the moment.
People who have spent periods of their life working in the UK
Many Irish people have spent not inconsiderable periods of time working in the United Kingdom in the past, so they may have an entitlement to a pension there.
As things stand, there should be no issue in receiving a sterling pension from the UK (although currency fluctuations will affect the euro value).
Recent changes made to the UK pension system have made it much more difficult to transfer pension benefits from the UK to Ireland. Concerning the social welfare system, EC regulations mean that periods spent working in the UK currently count towards an Irish state pension. This agreement will have to be renegotiated as part of the UK's exit from the EU.
In summary, notwithstanding the recent investment market volatility, pensions remain a very tax-efficient way to save for retirement, especially if employer contributions are also available.
Individuals should continue to monitor their pension savings but, for most, there is no need for immediate action.
Aisling Kelly is a consultant with Mercer Retirement
Sunday Indo Business