While it was always expected to be close, the fact that the UK has voted to leave the European Union is a genuine shock for most people.
With the vote exposing divides between England and Scotland/Northern Ireland, London and the rest of the UK and younger and older members of society, what will it mean for people in terms of pensions?
|Brexit Britain: What you need to know|
Initial turmoil on the markets
The markets were reasonably volatile for some time now during the run-up to the referendum and there’s no reason to suggest that this won’t continue now we know we are leaving the European Union.
That said, we are not leaving for at least two years from October, or whenever David Cameron's successor presses the big red button marked "Article 50".
Those who may feel a bigger effect will be those older savers saving for retirement in defined contribution schemes where they bear all the investment risk themselves as well as those people who have remained invested in income drawdown schemes. For younger members of society, the situation is not as bad, as they have the opportunity to buy stocks at low prices and they also have time for their portfolios to make up any lost ground later. A balanced pension portofolio could of course hedge out some of this risk.
Interest rates and their effect on pensions
There’s been no clear announcement as to what the Bank of England will do about interest rates. Whatever they do, whether it’s cutting the base rate or even hiking it, it could have an effect on pensions because interest rate expectations can move stock markets. Of course, as with share portfolios, there could be beneficial impacts on fixed income investments if the UK flourishes outside the EU.
Expats and frozen pensions
Those people who have emigrated could face a troubling future after the Brexit vote.
Those who have moved to other EU countries could face a long wait to renegotiate their status and work out new arrangements for paying pensions. Many people living in the EU could find their state pension is frozen in the future.
Whereas in the EU they automatically received their annual increase, they could now be like people retiring to countries outside of the EU where they don’t receive any annual increase at all. This could significantly impact many people living or planning to retire within the EU.
At this early stage it is still too early to tell just what all the effects of Brexit will be on pensions but one thing you can be sure of is that we are in for some interesting times ahead...