What would a no-deal Brexit mean for your finances?

UK politicians are still squabbling over Brexit, while March 29^th and our scheduled departure from Europe comes ever closer.

With a no-deal Brexit looking a real possibility, we look at the effects it could have on our pensions and ISA arrangements.

What will happen in a no-deal?

Experts seem to agree that sterling could suffer if Britain exits the EU without a deal. When governor of the Bank of England Mark Carney mentioned an “uncomfortably high” risk of a no-deal Brexit last November sterling slumped.

But the outlook for the pound and for the UK economy is not necessarily bleak. As we have seen several times, when sterling weakens the appeal of UK exports increases. What’s more, the UK’s blue-chip FTSE 100 index is made up of multinationals. Companies which generate the majority of their income overseas can deliver improved dividend benefits for UK stockholders.

Domestically focused companies tend to be in the smaller FTSE 250 index, but shares in sectors such as petrochemicals which take profits in US dollars could do particularly well.

How will this affect you?

It is easy to think that any disruptions in the markets will only affect stock market investors and be more interested in any potential effect of Brexit on your grocery bill – and these could be minimised by some last-minute compromises.  But remember you probably are a stock market investor if you have a pension, or an ISA invested in stocks or funds which hold stocks.

If you are worried about Brexit  affecting pension funds and ISA holdings will be facing any kind of Brexit crunch, you might want to look at your arrangements now to put your mind at rest.

However, the good news is that there is no need to panic – and most people might not need to do anything at all.

Brexit proofing your ISA

If you have a Stocks and Shares ISA, it is probably invested though funds by a wealth manager who is already working to minimise any negative effects of a hard Brexit. Some will be diversifying their holdings.

However, there may be little sense in panic selling of UK holdings, especially as the FTSE 100 could conceivably take another leap if there is no deal. Buying foreign holdings simply because they are foreign would certainly be a gamble.

Brexit proofing your pension

The position with your pension could be very similar to your ISAs – with one additional complication.

Most pension funds are managed by investment professionals, who will be fully aware of market risks and opportunities.

The complication comes because the style of your pension investment should usually reflect your age, or more accurately the time left until your retirement date.  In your 20s or 30s you have plenty of time to make up shortfalls. You are more likely to want to invest for stability and security if you are in your 50s. Your pension fund manager will take this and your attitude to risk into account when looking at how your pension fund is invested.

What should you do?

Unless you have a Self-Invested Pension Plan or SIPP, or direct investment in the stock market though your ISA, there may be no real need for you to take any action before Brexit.

If you do,  you might simply want to check that you are happy with the investments you have.

Planning investments requires an understanding of your circumstances and attitudes to risk as well as expertise in investing and the market.  Fortunately, a call to Continuum and a discussion with one of our advisers could provide both.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of pensions and investments, and the income they produce, can fall as well as rise and you may get back less than you invested.

Sources:

ft.com – What would a no-deal Brexit mean for your finances? – 2nd August 2018

uk.reuters.com – Sterling rises on report of ‘no-deal’ Brexit shipping fix – 4th February 2019