Brexit and Pensions

Standard

NB This article was written on 23rd June.  It does not give specific details on how the the West Midlands Pension Scheme, your works pension scheme, will be affected. Please see the financial press for the current situation

 

The impact on pension fund investments with a vote to leave will likely be significant. Defined Benefit funds will see deficits rise and Defined Contribution funds will fall in value and ultimately in their ability to deliver something to live on.

 

There will be a short-term negative impact on UK growth, and part of that could feed into lower growth in Europe. This could have huge implications for gilt yields which would impact Defined Benefit (DB) schemes.

 

 

The effect on yields will depend on how much the likelihood of Brexit is already priced into the market. Although it would appear to be priced in given the market has already adopted lower yield expectations, evidence of falling US yields suggests this may not be the case.

 

UK equities are widely expected to tank following a Brexit vote but again how much they fall by depends on the extent to which the risk has already been priced into the market.

 

The impact of the referendum on equities has probably been muted because the UK market is so international. More pressure on the riskier assets is likely.

 

As for sterling, which is expected to fall 10% following a Brexit vote, the impact on pension funds depends on how much they invest overseas.

 

If we see a sharp fall then we will see currency gains from overseas assets – so schemes could see a degree of currency benefit from those overseas assets they’re holding.  If overseas markets are negatively affected by Brexit, the value of those oversea assets may fall, affecting pension schemes negatively.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s