Earlier this year we learned that after a year of consultation, the Treasury had scrapped its plans to reform the taxation of pensions in this year’s budget.
The excuse this time was “market volatility”, though who now remembers the stock market movement of the first quarter? Following the results of the EU referendum, we have now entered into a period of great financial uncertainty.
Ultimately what impact will the leave vote have on pension schemes?
It seems unlikely that existing regulatory protections for pension scheme members would be stripped away purely because of their origins in EU law.
“As such, we would expect that the remits for The Pensions Regulator and the Pension Protection Fund will continue largely unaltered.”
Market volatility
This is the greatest concern,
Annuity rates have been “falling like a stone” and the situation “will get worse before it gets better”, Retirement Intelligence director Billy Burrows has warned.
Speaking on Radio 4’s Moneybox series he said it is clear that recent events such as Brexit have given momentum to falling rates and rates are likely to continue to drop.
Pensions Minister Ros Altmann recently said says there is a “delicate balancing act” to maintain the strength of pension schemes amid the uncertainty of Brexit.
In another statement she expressed “Good pensions depend on a good economy. Markets don’t like uncertainty, and we are clearly in unchartered territory,”
Alternative strategies at retirement
Alternative strategies at retirement could include simply delaying the purchase of an annuity (this will depend on affordability) drawdown, where the individual invests their money and then draws an income, or a fixed term annuity where the pensioner can get a guaranteed income for two or three years. Each option will depend on individual circumstances and professional investment advice in each case should be sought.
The future economy
So where do we see the economy heading? There have been hints about a further stimulus for the UK economy, Mark Carney, the governor of the Bank of England, signalled potential cuts to interest rates or further quantitative easing, or in effect, money printing.
Both of these could affect the health of company pension schemes.
Whichever way it goes, the situation looks problematic. In a recent statement the Pensions Regulator, advised pension trustees to revisit their “recovery” plans in the light of widening deficits and make appropriate changes.
But Baroness Altmann said companies should not be forced to spend too much plugging these deficits at a time when the economy needed boosting.
The future is unknown, and it will be interesting to see how it all unfolds. It is very important that rash decisions aren’t made at this stage, fluctuations in investments are common place, and a well diversified portfolio is still key.
