As the realisation of the historic Brexit vote continues to sink in, the effects of Britain voting to leave the European Union are still rippling around the world.
The predominant message still being conveyed by finance experts is to ‘keep calm’ and not make any major panic-driven decisions as yet. However, naturally, such a high degree of Brexit-linked uncertainty could lead to rash decision-making, that could be detrimental in future.
Those individuals with a British pension residing in the U.S. could of course be affected by the Leave victory.
Indeed, UK pensions face a high level of risk, due to a combination of several factors coming together to negatively impact retirement savings.
deVere founder and CEO, Nigel Green says: “UK pensions face an unprecedented level of risk following the Brexit vote. Those with UK pensions must be made aware that many of their hard earned savings are now in the eye of the perfect storm following the UK’s historic decision to leave the EU.”
The main factors that could seriously disrupt retirement ambitions are, firstly, gilt yields. They have fallen substantially since the referendum result was announced, which has in turn driven up transfer values.
Although this is positive for those withdrawing funds from defined benefit schemes, large pay-outs place further pressure on the schemes.
In turn, should an increasing number of people look to transfer, the more probable it is the schemes will face cash flow problems and perhaps stop transfers completely.
In addition, dropping gilt yields will lead to an increase in pension deficits. Latest reports suggest the UK’s pension deficit could soon reach a trillion GBP. This, therefore, puts the survival of numerous company pension schemes into question.
As a result of the increasing uncertainty, expats and those considering retiring outside the UK, have the option of transferring their pension into a secure, regulated jurisdiction outside the UK.
An established and ever more popular way of doing this is to transfer pensions into a Qualifying Recognised Overseas Pension Scheme, or QROPS.
A major advantage of a QROPS is that individuals are able to select the currency they wish their pension to be paid in. This removes exchange rate fluctuation risks, and provides the holder with a more stable, predictable financial situation.
Other QROPS advantages include enhanced flexibility and freedom; relieving UK income tax or indeed death charges of as much as 45 per cent; and, importantly, funds can be passed on to heirs on death – after non-UK residence of five years.
As Nigel Green was quoted as saying in the media recently: “We can fully expect demand for HMRC-recognised overseas pension transfers to be further boosted thanks to the UK’s decision to leave the EU.”
An Autumn Budget will be looking to acquire savings – and the UK government will look no further than slashing pension tax relief. The numbers are large. Higher-rate tax relief on contributions costs £7bn, the pension tax-free lump sum costs £2.5bn, and national insurance exemption on pension contributions costs £13bn.
As such, individuals considering making pension contributions should do so sooner rather than later.
With the world continuing to settle into a post-Brexit realism, global markets have been see-sawing.
Such volatility is created on by the massive uncertainty triggered by Brexit.
Therefore, it is crucial that investors maintain a suitably diversified portfolio, balanced across geographical regions, asset classes and sectors, in order to best mitigate risks and take advantage of the inevitable opportunities.
Naturally, shrewd investors will be making the most of the upsides that such unpredictability brings, and the best way to do this is to seek sound, independent financial advice.
The international financial advisory sector should see considerable client demand-driven growth following the Brexit vote.
As we can expect more people to consider moving out of Britain, particularly before Britain brings Article 50 of the Lisbon Treaty into play, these individuals and companies will require specialist financial advice, as all expats and international firms do.
Moreover, once Britain officially leaves the EU, the financial situations of those living and/or working overseas will inevitably become more complex. As such, there will be an even greater requirement for international financial advice from cross-border specialists.
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