The votes have been cast and the decision made - Britain is leaving the EU. Many Brits have woken up to the news with surprise and are now wondering how this will affect them and their finances. We won't know for sure for some time yet, but experts have already been discussing the implications with regards to pensions.
The news of the Brexit result has led to turmoil in the financial markets, and this means that the value of retirement savings has probably taken a hit. However, Tom McPhail of Hargreaves Lansdown has urged against making a knee-jerk reaction. Retirement savings are built up over many years, so for those who still have a long way to go until they hang up their work boots, it is probably best to carry on as you are - over the long term, volatility in the market can be evened out, which means you should still be able to build up a healthy pension pot.
But what about if you are close to retirement or are already receiving a retirement income? Well, Tom McPhail still urges caution, saying that while annuity rates may move in response to changing interest rates, this is not yet certain. Meanwhile, those who are receiving a drawdown income (or are planning to) may need to be more proactive in order to safeguard their income, so if you are uncertain how to do this, the best thing to do is to seek the advice of an independent financial adviser, who can guide you on the best way to navigate market volatility.
It is possible that there could be further curbs to pension tax relief. Pension tax relief currently costs the Government an estimated £34 billion a year, and according to Tom Selby of AJ Bell, if the economy does nosedive, "slashing this incentive will be deeply tempting for a Government desperate to raise cash". However, this is very much dependent on what will happen in the weeks, months and years ahead, but if you are concerned, try to make the most of the tax relief you have now by boosting your pension savings.
Another potential casualty of the Brexit decision could be the Triple Lock system, adds Tom Selby. The Triple Lock, which guarantees that state pensions will rise annually at either CPI (Consumer Prices Index), earnings growth or 2.5% (whichever is greater), could be scrapped in a move towards greater austerity, something that was suggested during the referendum campaign. According to AJ Bell, a 65-year-old retiring on the flat-rate state pension of £155.65 a week would miss out on at least £50,000 of income over 20 years without the Triple Lock. However, this is all speculative right now, although it may be worth reviewing your retirement income plans so that you can be sure you will cope if the Triple Lock is removed.
Planning a retirement income and getting to grips with pensions is always difficult, but in this time of uncertainty things are even more complicated. Essentially, the experts appear to be unanimous in their verdict of 'don't panic', but if you are worried or want to review your pension plans, seek out the advice of an independent professional. This way you are likely to get the best long-term plan for securing the retirement income you want.
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Read our guide on the changes brought in by the pension freedoms
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