As the referendum is now only one day away and arguments for both ‘Remain’ and ‘Leave’ are being considered, one of the major questions, which may come to affect voting decisions greatly, is that of the effect a Brexit vote could have on UK pensions. It was noted, after the Scottish independence referendum, that pension security was the major concern which won the vote for the ‘No-to-independence’ side. If the consideration of pension safety should play a similar role in Thursday’s referendum, staying in the EU clearly becomes the more likely choice for a number of reasons discussed below.
The ‘Leave’ campaigns argument for more self-determination on UK pension policy does not add up
The ‘Leave’ campaign has tried to make UK pension policy an argument in their favour, stating that current and future EU legislation on pensions will infringe and harm UK interests. The European Union currently has some legislation which affects UK pension policy, mainly to the purpose of harmonisation of certain aspects to allow for the possibility for free movement of people across the European economic area. There are currently negotiations over new additions to harmonised legislation on the way which could bring changes to the UK pensions system that may not be welcomes by everyone.
However, blaming the European Union and UK inability to affect EU law making sufficiently for the implementation of somewhat unfavourable changes may have to be considered as scapegoating. Blaming international organisations for unpopular but necessary policy measures has always been a common choice for political parties and governments to avoid having to take responsibility and face voters disinclination head on. In the case of EU policy decision on pensions it would be reasonable to think that this may be the case.
Like many other European countries, the UK is currently facing the issue of an ageing population. The UK parliament estimates that between 2015 and 2020 the general population is going to grow around 3%, while the population over the age of 65 is expected to increase by 12% (1.1 million) and the number of people aged over 85 by 18% (300,000). Therefore, some new policy changes which can create better working opportunities for older workers, encourage more private pensions and raise pensioner age, as much as they are painful to some, may simply be necessary to support the demographic change.
Leaving the European Union gives the UK more self-determination over its’ legislature, but it does not change the fact that the issue of an ageing population is putting strain on current UK pension policy and needs to be addressed through changes.
The new-found freedom is also unlikely to be used to reverse the adoption of the Specific Funding Requirements, one of the main EU directives on pensions. The UK’s predecessor, the Minimum Funding Requirement, had been recognised for its inadequacy and many Trade Unions are likely to lobby for the preservation of the current directive.
The UK’s ability to make changes to UK pensions legislation depends on a post Brexit negotiated deal
Further, any ability for more self-determination on this policy area also depends on the negotiations on the terms of the UK’s exit from the European Union. Should the UK decide to join the European Economic Area, like countries such as Switzerland and Norway, it will still have to harmonize pension legislation with the European Union, without having a say in their design any more.
Why Brexit may decrease your UK pension value
Lastly, there is great concern over what market movements could mean for UK pensions. Most UK workers save into a defined contribution pension. These pensions do not have a fixed term on retirement income but depend on the market. Financial instability or, in the worst case, a market crash will lead to these pensions being worth considerably less.
While this may not affect young people greatly, as they have time to wait for markets to recover in the future, people who are looking to retire soon should be worried about how much their hard work will pay out in the end.
Even workers who are looking forward to a fixed term pension may have reason to worry. A Brexit vote may lead to the Pound losing in worth and inflation to go up, meaning that their money will ultimately buy less.
This especially is, reason for concern for the many pensioners who have set out to enjoy their retirement abroad. As their pension is fixed in terms of Pounds their real living income will decrease as the Pound loses out against local currencies. Further they face the threat of losing access to local health services which are currently freely usable to them under EU legislation.