The government has been tinkering with pensions for the past few years and with Brexit discussions between the UK government and EU underway, there could be increased risks for those saving into a pension pot.
As Steve Webb, director of policy at Royal London observes, there is a clear link between pensions and the economy.
“At the heart of good pensions is a strong economy. With a strong economy there is the tax revenue to pay state pensions, there is the revenue for companies to pay good wages, and there are opportunities for individuals and pension funds to invest their capital and get a good return,” he explains.
“The key question, therefore, is whether Brexit and the triggering of Article 50 has a positive or negative effect on the UK economy.”
Damage to pensions
As discussed earlier in this guide, the shape of the UK’s economy during and towards the end of the negotiations is unknown which makes it hard to measure the direct impact on pensions.
The main impact so far has been the sudden and continuing decline in the value of the pound.
Mr Webb says: “This has given a boost to exporters and, coupled with continued loose monetary policy, has helped to keep the economy going since the referendum.
“However, there are signs that stagnant real incomes and business nervousness about the outcome of the Article 50 negotiations are starting to act as a drag on the economy, and growth has slowed considerably.”
He forecasts: “It seems likely therefore that the economy will weaken and this will damage pensions in the short-term.
“This will be reinforced if interest rates are kept 'lower for longer' as appears likely.”
Much more important, though, is the long-term outlook when it comes to pensions, as those saving for later life will be doing so for another 10, 20, 30 or even 40 years, particularly as the state pension age is set to increase.
In other words, the short-term implications of Brexit should not matter to them.
Tom Selby, senior analyst at AJ Bell, urges investors and retirement savers not to try and second guess the impact political events such as leaving the EU will have on markets.
“While the UK leaving the EU might increase short-term volatility, pensions are a long-term game and so shouldn’t be overly affected by political turbulence.
“Indeed, the biggest danger to pensions might be people being put off retirement saving because of the perceived risk associated with Brexit,” he warns.
“It’s also worth remembering that Brexit is just one factor affecting investment conditions in one part of the world. In reality pensions are invested globally and markets are affected by a multitude of factors.”
While Mr Selby does advocate taking a long-term view when it comes to saving for retirement, he points out there is a group of people for whom the future of their pensions is rather more uncertain.
