Anyone who tells you that they know for certain how Brexit — Britain’s vote to exit the Eurozone — will impact pensions and Qualifying Recognized Overseas Pension Schemes (QROPS) is lying. Much is still unknown; reactions Friday included the pound going into freefall against the dollar and 10-year UK government borrowing costs sinking below 1 percent for the first time ever.
Now-resigned UK Prime Minister David Cameron will leave his post by October. Then — no longer part of the union — the UK will renegotiate its trade, business and political arrangements — a complicated process which could take up to two years.
Expats in Europe and British expats living elsewhere have questions, but there are no quick answers.
Sources of concern
Expats in Europe are concerned not only about their pensions and how they will be paid, but also about taxes and levies on those payments. With the UK no longer a member of the European Union (EU), it’s an unfamiliar playing field.
QROPS transfers for British expats living in other countries fall under Her Majesty’s Revenue & Customs (HMRC), not the EU. Therefore, it needs to qualify under HMRC rules. According to Alan Kentish, interim chief executive of STM Group, UK citizens will still be able to transfer their pensions to Europe via a QROPS.
Don’t forget, also, that 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 long-term impact on asset prices in the UK from property to shares will take time to become apparent.
Defined-Benefit (DB) schemes could also come under pressure, however, due to lower economic growth in the UK that stems from the overall uncertainty. With lower economic growth potentially reducing equity returns, an argument to transfer out of DB schemes could certainly be made.
So while Britain’s invocation of the Lisbon Treaty’s Article 50 is sorted out — the formal, two-year process for Brexit to be official — it should not take long to get a better understanding of the impact that Brexit will have on UK-based pensions.
In the meantime, keep your panic at bay and keep your portfolios liquid and flexible, and count on Alconbury Trust to keep you informed.
Alconbury Trust LLC is a Registered Investment Advisor in the State of Florida and Texas – USA.