The ramifications of the leave vote will take some time to fully comprehend. In the pensions world, much will depend on the precise nature of our future relationship with the EU. But, in the short term, government resources will need to be redeployed to EU renegotiation and much of the daily business of government is likely to be put on the back burner.
This could result in delays to the Pensions Bill which would have introduced much needed protections for people saving in master trust pension schemes – a popular choice for auto enrolment. It will also be interesting to see whether the Lifetime ISA and 2017 review of auto enrolment are de-prioritised to clear the legislative decks.
With a new Prime Minister will come a new Cabinet and this could result in changes in the strategic direction for long term savings although government commitment to auto enrolment has been consistent and frequently reaffirmed.
Short term volatility
When it comes to investments, stock markets have been caught off guard by the decision and this will inevitably result in short term volatility but, it is not anticipated to affect long term investments such as pensions.
For those nearing retirement, many pension providers will have hopefully sheltered their funds moving them into less risky investments 10 years before retirement. But, for those planning on buying an annuity, rates may become even less attractive should the Bank of England take the decision to cut the base rate further.
The triple lock
Remain campaigners raised concerns that a leave vote could threaten the viability of the pensions “triple lock”. The triple lock means that state pension payouts always increase by whatever is the highest of inflation, average earnings or 2.5 per cent. Whether or not this is reviewed will depend on the new Prime Minister and the state of the UK’s finances over the coming months. But, even before the Brexit vote, many have argued this promise is unsustainable.
Over time, certain aspects of UK pension law may need to be disentangled from EU legislation, which presents an opportunity to reconstruct UK financial services legislation in a way that best serves the UK market in the most cost effective way.
Ultimately, pension saving remains one of the most tax efficient ways to save over the long term and the decision to leave the EU hasn’t changed that.