Brexit, lets avoid a tragedy with young people and pensions

As Advisers we have always recommended investment based savings should be viewed over the longer term as volatility over time will usually lead to better results. This view is particularly appropriate when speaking with younger savers as they can afford to take more risk in the quest for better returns.

At times like these where the market is in a state of flux though, volatility can be frightening for anyone, and if as a young saver you log into your pensions portal only to see that the value of your investments has halved you would have every right to be concerned.

If the statistics we have seen are to be believed, a significant majority of the 18-24 year olds voted to Remain, and a majority of 25-49 year olds voted the same way and so could feel that they are seeing their values fall as a result of something they never wanted in the first place!

It would be a real tragedy if young people, more switched on to pensions than ever before due to publicity around Auto-enrolment, found themselves put off the whole idea of long-term savings due to poor investment results. As a group they are not saving enough anyway, and I suspect it wouldn’t take much to convince people to opt out of pension auto-enrolment and ‘bolster’ their pay packets instead.

It may help that the FTSE 100 has bounced back somewhat, but let’s not forget that the FTSE 250 is still freefalling, and this is often seen as a better indicator of how the UK market is really doing. How a young saver’s portfolio is doing could very much depend on what time or day of the week they are checking it.

In some respects, we are fortunate that young people tend not to check their pensions terribly often. But with share price volatility dominating the headlines it would come as no great surprise if Brexit was the prompt to change this.

This means that Advisers, scheme administrators, providers and HR directors have a conundrum. Do they talk to savers about their finances and risk more people paying attention, or do they leave it alone and hope that no one is looking anyway.

The EB Partnership have always believed that the communication of benefits is vital for many reasons, and in fact are so passionate about it we launched a company to help companies of all sizes do that very thing (www.benefitscommunication.co.uk)!

Given the Brexit vote, we feel that it is better to engage with staff than not to, but it needs to be done carefully. We all need to find a way of explaining to policyholders that while their investments may have fallen, they have a few decades before retirement and are in a good position to recoup any losses.

Communications need to be clear, concise and reassuring. And they need to be soon. After all, if schemes leave it too late, their members could already have ‘voted to leave’ with regards to their retirement savings.

How would Brexit affect UK Financial Services Regulatory Structure?

On June 23rd 2016 Britain, Europe’s largest financial centre, will vote on whether to leave the European Union.

A number of analysts have stated that the country’s banking and fund management industries are among those that could lose most from the so-called Brexit, though much depends on the Trading terms Britain would be able to negotiate with the EU.

The following details some potential changes that could affect the financial services industry, which will likely have a knock on affect to investors, clients and policy holders alike:

Regulatory Structure

Rules – The great majority of Britain’s Financial Services rules are derived from EU Law. Though Britain has gone further than EU requirements in some areas such as Banker pay and general capital requirements, a new rule framework would need to be devised within 2 years of exit.

Passporting – Businesses such as UK Insurers, Banks, Asset Managers and payment service Providers who are authorised in Britain have “passport” rights to conduct business in all EU countries, either remotely from Britain or from a branch in another member state, which would be lost on exit.

Having voted to leave Europe Britain could join the European Economic Area (EEA) which has Norway, Liechtenstein and Iceland as Members which would allow financial companies to continue to have passporting rights to the EU, although any influence over the formulation of rules going forward would be lost.

If Britain did not join the EEA (or was not accepted as a Member) then any UK firm wanting to operate in the EU would have an “equivalence” test to prove to Brussels that the rules in the UK where comparable to those in the EU.

Also, going forward UK companies seeking to offer financial services to customers in the EU may need to establish a subsidiary in the EU which could be more expensive than running a UK Branch.

To be clear we are not advising our Clients how they should vote on June 23rd as we all will have our own opinions. The purpose of this blog is to put forward some areas of consideration that may affect Financial Services, and we look forward to learning more from ‘both sides of the debate’ in the run up to the vote!