Savers, investors and expats: get ready for a hard Brexit
In the aftermath of Theresa May’s landmark Brexit speech at Lancaster House in London today, it’s crucial that pension savers, investors and expats shore-up financial planning strategies and portfolios ahead of the so-called hard Brexit.
In front of senior British officials and worldwide representatives from the Brexit negotiating team, as well as UK-based Ambassadors and High Commissioners, the Prime Minister announced plans to make a clean break from the European Union, meaning that Britain will be pulling out of the single market.
Indeed, Mrs May said in her speech: “Being out of the EU but a member of the single market would mean being subject to rules without a say in them. Staying in the EU would mean not leaving the EU at all.”
As a result of this hard Brexit stance, substantial change is anticipated in the financial landscape. Therefore, people should be making preparations for this shifting environment sooner rather than later.
As such, pension savers, expats and investors must now review their strategies with an aim to mitigate any potential risks, and make the most of opportunities that may arise.
The biggest concern is that company pension schemes may find it difficult to fulfil their promises, in part due to low bond yields. This would result in the funds having to purchase more bonds on the pensioners’ retirement in order to secure the promised income – to some extent because of the average long-term forecasts of stock market growth. In addition, life expectancy has increased more than was predicted decades ago.
Furthermore, a Brexit-fuelled economic downturn would trigger more problems. Will the company be in a position to pay into the fund? Will stock market returns drop? Will members be forced to settle for a later retirement date and/or a lesser payment?
Indeed, following the Brexit vote last June, the pound has suffered major volatility, falling to its lowest level in two months. When Article 50 comes into effect, sterling is forecast to fall further.
Naturally, the plunging value of sterling has a grave, negative impact for the millions of British people residing overseas who live off a fixed income from Britain, like a UK pension. The cost of living rises, thereby eating into a percentage of their disposable income.
Moreover, investors must look into rebalancing their portfolios in the wake of a hard Brexit. They should be protecting their portfolios against the potentially negative effects on UK assets, and avoid those firms who solely rely on UK earnings.
This can be achieved by enhancing exposure to overseas investments, and rebalancing portfolios to include international stocks, bonds, and, perhaps, property.
Therefore, I would advise investors to ‘Brexit-proof’ their finances, and consider all available options before Theresa May triggers Article 50.