11 Feb, 2019

Worried about the impact of Brexit on your Pensions and Investments?

The uncertainty of Brexit trundles on and menace of a hard landing looms. There has been much speculation regarding the impact on the farming community and businesses in general. Our Head of Financial Planning, Martin Glennon, discusses this.

The uncertainty of Brexit trundles on and menace of a hard landing looms. There has been much speculation regarding the impact for the farming community and business’s in general.

The latest warning from the Central Bank is that a no-deal Brexit could reduce the growth rate of the Irish economy by up to 4% this year (25th Jan 2019).

Since the vote in June 2016, there has been a slow realisation of how the divorce could affect so many different aspects of life. From reports of goods being warehoused, to a possible shortage of certain medicines and even the more unusual such as, British ex-pats losing access to their pensions.

But what about your pension and investments, how will they be affected and what should you do?

Will I lose access to my Life or Pension policy?

The threat to ex-pat pensions would happen with UK firms losing their rights to passport their products and accounts into the EU. The close links we have with the UK are evident in the number of Pensions or Life Assurance companies that are originally UK based such as Aviva, Standard Life and Royal London.

So, should you be worried if you hold a Pension account or Life Assurance policy with such a firm?

The answer is no. Each of these companies has, or is in the process of, changing its regulation from the Prudential Regulation Authority in the UK, to the Central Bank of Ireland. This will ensure that Irish policyholders will not be affected.

What about the Investment Risks?

The FTSE 100 has dropped in value by 13% since January 2018. But remember this, stock market valuations reflect what the market expects to happen. They are forward looking. With all the drama that has taken place in Westminster, it is fair to forecast that the current market is tilting toward a harder exit. In other words, a lot of the worst case has been priced in.

In the past Irish Fund managers were criticised for holding too much Irish equity in their funds. This may also have been the case for UK fund managers operating in Ireland. The vote to leave, however, has focused the attention on all fund managers when holding UK based assets. We have checked the latest medium risked funds of all the Life companies and the average holding of UK assets is between 5-7%, with the highest holding in this category at 10%.

The UK is the 5th largest economy so these holdings are appropriate. If you dig deeper and look at the shares that are held, you will find companies such as Diageo, GlaxoSmithKline, HSBC and Unilever. All these companies operate internationally, and the UK marketplace is only a fraction of their enterprise.

How will Sterling affect my Pension?

The biggest risk to Irish investors who hold UK assets is in the value of Sterling. At the time of writing €1 will get you £0.87. So, if you were to purchase UK assets worth £8,700, you would need €10,000 to complete the transaction. If a hard Brexit leads to the weakening of sterling and, as some commentators believe, parity was achieved, then without any movement in the actual asset value, an Irish investor would lose €1,300 with this transaction, on the currency movement alone.

What should I do?

Check with your Advisor how your Pension funds are invested. Ask them how much of your money is exposed to UK assets.

If your pension or life assurance account is held with a UK based provider, then you have no need to seek a new provider. These companies have moved or are moving their operations to Ireland and this will protect Irish policyowners.

If you hold a UK Equity fund or UK Property fund, then I suggest you discuss your overall asset allocation with your advisor.

If, however, you are like most pension investors and hold multi asset or managed funds, then take comfort in the knowledge that due to the diversification of these funds, a relatively small percentage of your monies are exposed to any investment and currency risk that Brexit may bring.