How could Brexit affect UK pensions and QROPS?
Written on 1 October 2016
The world after Brexit is in a bit of a holding pattern, as we collectively await signs of what is to come economically as a result.
The uncertainty has impacted markets, as investors attempt to theorise and rationalise what happens next.
What we know for sure: Britain voted to exit the European Union (EU) on June 23. The pound fell significantly against the dollar. For the first time ever, 10-year UK government borrowing costs fell below 1 percent.
UK Prime Minister David Cameron resigned and will officially step down in October. Britain has two years after notifying the EU of its intention to leave to negotiate its exit with policy makers, so we can expect the markets to remain volatile for some time.
As investors take inventory of potential areas of financial vulnerability, when it comes to Qualifying Recognised Overseas Pension Schemes (QROPS) transfers, there is a positive angle: Its business as usual.
Brexit and QROPS
Worry about the effects of Brexit onQualifying Recognised Overseas Pension Schemes (QROPS) transfers is not the sole concern for expats.
Remember, expats are long-term investors; some still have property and savings in the UK, as well. So it isn’t just pension transfers that are a worry for them. The impact on asset prices in the UK from property to shares over the long term is a concern.
Defined-Benefit (DB) schemes could also come under pressure, however, due to lower economic growth in the UK as a result of all this upheaval. An argument to transfer out of DB schemes could certainly be made, as lower economic growth could potentially reducing equity returns.
On a positive note, although, QROPS began under EU law, there are now separate agreements in place between the individual jurisdictions and the UK in relation to pension transfers. So when the UK officially leaves the EU, these agreements will be upheld. The pension funds set up in these jurisdictions will still fulfil the criteria in order to be recognised as Overseas Pension Schemes under UK legislation.
According to Alan Kentish, interim chief executive of STM Group, UK citizens will still be able to transfer their pensions to Europe via QROPS transfers.
At Alconbury Trust, we are of course watching Brexit developments very closely. But for now, we advise investors to stay calm, don’t make rash decisions without expert advice, and keep portfolios liquid and flexible.