Your Money After Brexit

View this article in our magazine on pages 24 – 28; or continue scrolling to read the editorial below:

On March 29th, the UK is due to leave the European Union (EU) following on from the vote to leave in the referendum nearly two years ago.

Just a quick reminder – in case you have been completely out of the loop – the UK voted back in 2016 to leave the EU. The vote was held on Thursday 23rd June, 2016, where the leave vote won by 51.9% to 48.1%. The referendum turnout was 71.8%, with more than 30 million people voting.

The process of Article 50 – which gives the two sides two years to agree on a proper deal regarding the split – was triggered on March 29th 2017, meaning that the deadline is fast approaching.

But what does this mean for us now?

Unfortunately, there is no certainty regarding the outcome of Brexit – that’s the short answer, and definitely not the one you want to hear.

One of the biggest things that happened almost immediately following on from the result of the referendum was a steep drop in the value of the pound sterling. This has therefore brought about concerns for companies, workers, holiday makers and UK pensions. But Rob Cowsell from SWLaw – an Investment and Financial company based in Lee Mill – says how a decline in the value of the sterling can benefit investors:

“Transnational companies listed on the FTSE 100 exchange benefitted from earnings in currencies that were outperforming the pound; note FTSE 100 companies receive circa 75% of their income from overseas and FTSE 250 businesses circa 55%.

“Furthermore, as a UK investor, you are likely to have substantial exposure to the dollar given its prominence on global markets; the likes of HSBC and Shell both report in dollars and also issue dividends to qualifying shareholders in dollars. An investor’s attitude to risk, goals and ambitions is crucial when making investment decisions.”

Despite the uncertainty, Brexit does not have to be a concern for your personal finances. The UK is prepared for any outcome – even if that outcome is a ‘no deal’.

There are certain things that you need to remember before instantly panicking about any savings or investments that you may have. The banks are strong enough to survive a disorderly Brexit that could leave the country worse off than the 2008 financial crisis. However, if your bank does happen to fail, you would get back-up protection of £85,000 per person, per financial institution.

The reason for this is due to the Financial Services Compensation Scheme (FSCS); this protects customers when authorised financial services firms fail.

The main categories of protected savings are banks and building society accounts, all UK credit unions, bank or building society savings accounts, current accounts and small business accounts, and any cash saved within a SIPP pension or any cash ISA (including Help to Buy ISAs).

The stress test released by The Bank of England in 2018 states that all seven UK based banks are above the minimum requirement of their capital levels.

So hopefully looking at how the banks will cope even in the result of a ‘no deal’, that should give you reassurance regarding any savings you have banked!

Plus, The Bank of England base rate is currently at 0.75% compared to 0.25% following on from the vote, which is great news for interest rates on UK bank accounts.

YOUR PENSION

You will be pleased to hear that whatever the outcome of Brexit is, someone with a UK pension will still receive their payments – whether they’re living in an EU country or have retired in the UK.

Back in 2016 – following on from the vote to leave – pension funds had a very strong year. The average fund finished the year up 15.7%, which is the strongest performance it has had since 2009.

This improvement was due to the falling value of the sterling. This saw an increase in foreign investment, which led the FTSE 100 to hit new record highs – this is good news for pension savers.

The uncertainty, however, lies within how much your pension will be worth as time goes on. Precious losses on the FTSE 100 has seen the value of UK pension funds decrease drastically – which due to the uncertainty surrounding Brexit is a worry to most Brits.

In the past 20 years, there has been a total of two 12-month periods where the FTSE All Share index has lost a third of its value – despite this, it has still managed to recover. And whilst price falls may be very daunting for many, there are also opportunities within them.

Even if there is a shock to the stock markets that could affect your pension, things will generally get better in the end – especially over longer periods of time.

Rob of SWLaw says how pensions have evolved a great deal through the years:

“The state pension payment is not at the mercy of investment returns and shall continue for as long as the Government sees fit, regardless of Brexit fallout. Furthermore, those that benefit from a public service workplace pension scheme, the eventual pension entitlement will be dependent upon salary and years of service as opposed to the performance of underlying assets.”

If prices do fall, pension fund managers can jump on the low prices that will be able to make large returns when the ‘re-correction’ occurs.

The general conclusion is that over the course of a pension’s life, a 5% annual return is still reasonable to expect; this is taking into account both a very good and very bad performance.

“Time is a critical factor in relation to all investment decisions,” Rob explains, “including pension, and the given investor’s time-frame and purpose for the funds will impact choice and suitability. Pensions are a complex area and an investor needs to look at their contribution levels, their anticipated retirement age and the pension scheme(s) they are currently in, before worrying about the outcome of Brexit.”

The best thing to do regarding any uncertainty is to speak to a financial advisor, who can answer any questions that you may have regarding your pension and to see whether it’s still on track.

Richard Green from Westcountry Financial – a financial advisor company based in Tavistock – there will be no effect on pensions after our exit from the EU:

“Why should it? Pensions generally – and the people that put them in and invest them properly – should be absolutely fine. Pensions are always long-term and in any case, the longer you put something in, the more it will grow. The most important thing is to make sure you’re putting in something that is going to produce a greater return. If you put it in a deposit account then it will be secure, but your growth will be next to nothing.”

FINANCIAL & INVESTMENT PLANNING

If you’re worried about any financial planning or investments you have, Independent Financial Advisors are saying to relax; in fact, financial advisers see the biggest threat to the UK population’s long term financial security as leaving it too late to start planning their finances.

At the end of the day, what’s happening in the global market place is completely out of your control – you just need to make sure that your business, money and affairs are in order.

By keeping a cool head and gaining clarity on your long-term plan, this will really help you amidst the uncertainty of Brexit.

For businesses, the financial implications of Brexit show the value of creating more diversity in your investment portfolios. This is so that events in one area do not overly impact your investment returns.

For personal finances, when making decisions about your investments, you should consider what your future plans are. If you need to access your money soon then it is better to take less or no risk. If you don’t need to access your money, then you should be able to coast along throughout any volatility in the investment markets. Richard of Westcountry Financial explains how investing your money when the market goes down will lead to positive returns:

“People who are investing longer term when the markets go down, they actually buy more for their money.

“If they’re buying say “units” for a pound in 2007 and then the market drops in 2008 – when markets collapse and fail, which it did, you’re continuing to buy and then what you’re buying you’re then getting twice as much. Historically the market is always right, so rather than stopping and being concerned, you’re actually increasing what you get. Unless you need to take the money out at the time of a fall in the market, then it’s good for you.”

A good thing to do as part of any financial plan is to have an emergency fund. If you have this, you gain more stability if anything happens to effect your finances if economic conditions get worse.

Just make sure not to take any rash decisions and talk to a financial planner or investor before you decide what the next best step to take is.

Brexit has led to concerns for many. Of course, when it comes to money, you just need to have the reassurance that your finances are safe and there’s nothing to worry about. You also want to know that you’re getting to best deal and not overspending where you don’t have to.

A financial planner can help you discuss any concerns regarding your money: whether it be pensions, investments, or just general financial concerns. They’re here to help, even in the most confusing of situations.

INVESTING IN PROPERTY

If you’re worried about investing in property amidst the uncertainty of Brexit, you may be reassured to hear that the UK is still one of Europe’s strongest property markets overall and is still a popular choice among many oversea investors.

If you’re a property investor, you’re likely to be looking for long-term gains from it. Either way, any decrease or none at all, the price of your property – providing you did your research properly before buying, is likely to appreciate in the long run.

Tricia Kennedy of Mortgages4Plymouth – an award winning mortgage advisor based in Plymouth explains how property will always be a sound investment:

“Property will always be a sound investment, at this moment in time there is a lack of property coming to market so demand is out weighing supply and prices remain steady.

“We have lots of first time buyers ready to go but can’t find a suitable property. As buyers now only needing a 5% deposit and very low rates, we are seeing more and more first time buyers in a position to buy now.

“Generally people are nervous about rates rising after Brexit, however the Bank of England have already said they are prepared to reduce the rates in the event of no deal. Most clients are happy to lock themselves into a 5 year rate particularly as they are so low.”

Although prices may fall a little in the short-term, they are on a huge upwards trend in the long run. This means that short-term drops can be a great chance for an investor to rise above the panic in the market to buy well.

Brexit will always be associated with the term ‘uncertain’, because of where we stand right now, there is no complete guaranteed outcome; but hopefully now you can be reassured about your finances and know that there are places to go if there’s anything you’re not sure about.