UK 
United States
As the UK public voted to leave the EU, the country quickly fell into meltdown. Sterling plummeted, and market makers shouted into phones as confidence in the UK crumbled after the opening of stock exchanges on Friday 24th June.
But the reality is that markets almost immediately started to recover. This was in no small part due to the words of Mark Carney, Governor of the Bank of England, providing support to any UK banks that might need it, but it highlights the need for a balanced and long term view of the economic cycle.
The most obvious fallout from the referendum was in fact a political one, with both of the main parties thrown into the grip of leadership battles; one out of necessity the other an all-out rebellion.
Now that Theresa May has the backing of the Conservative Party there is some stability, but as a previous Home Secretary, little is yet known of her economic policy.
Much has been made of her bold statements in naming her new cabinet, not least of all appointing Boris Johnson, leader of the Leave campaign, to Foreign Secretary. However, the one appointment that may have gone under the radar is the resignation of Ros Altmann from the Pensions Minister role, a title she held for a little over a year.
Pensions
Ros Altmann’s replacement, Richard Harrington, has been named undersecretary of state for pensions, a different title to his predecessor but apparently with the same brief.
This decision to change the role to a junior ministerial position (the lowest of the three tiers of Government minister) may tell us a bit more about this new Government’s ideas for pensions in the long term, as in they may not have many.
This could be a blessing for an industry that has seen constant change over the past decade. It may see a simplification of tax relief, the removal of the draconian Tapered Annual Allowance and possibly even the Lifetime Allowance, all of which would relieve a major headache for pension holders.
Or it may see no change whatsoever. Only time will tell.
Interest rates
The continued uncertainty within our political system mirrors the current confidence in the economy. With consumers more likely to save and investors less likely to invest, the growth of the economy will be hit, possibly even seeing us slip into recession.
In order to try and stave off this possibility, the Bank of England Monetary Policy Committee reduced interest rates to just 0.25% on Thursday (4th August), as well as previously relaxing lending regulations for households and businesses to try and get money into the economy.
International trade
Of greater concern is the continued weakening of the pound; bad news for UK importers, but arguably good news for exporters as they can sell more of their product to the rest of world. But with the UK being bigger importers than we are exporters (currently at least), this may have a further impact on economic growth.
Some UK companies will flourish, out from under the boot-heel of EU regulation, but a slow economy will inevitably have knock on effects on unemployment and salaries. How much so will again depend on how our leaders sail us through the storm.
Financial Strength
As with most parts of our economy, financial services are likely to face significant challenges in the coming months and years. Consumer sentiment and how individual companies interact with the rest of the world (as well as the EU) will play an important part in any success they see.
However, unlike most other sectors, there has been significant regulation put in place to ensure that members’ assets, wherever they might be, are protected from companies going bust.
This is no more apparent than with Solvency II (ironically an EU Directive), which states that from 1st January 2016 all insurers must hold significantly higher levels of capitalisation than they needed to in the past, to ensure the security of their policyholders’ assets.
The Financial Services Compensation Scheme (FSCS) too, affords consumers from most walks of financial services some, if not total, protection from the collapse of an institution.
Financial strength forms a key part of Thomsons’ analysis of the pension market. High levels of solvency and consumer protection should see the industry weather the coming storm.
A legacy of harsh lessons learned.
Written by Luke Harris, Pensions Technical Manager at Thomsons Online Benefits.
If you have any question or concerns about the impact that Brexit may have on your pension, get in touch with Thomsons today.
