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9 June 2016

What would Brexit mean for my pension?

I believe we are in a position not dissimilar to Butch Cassidy and the Sundance Kid: do we jump and hope it doesn’t kill us, or stay put and hope to dodge the bullets.

By Helen Walmsley-Johnson

Did you feel forgotten? I know I did but sadly it wasn’t to last. A couple of weeks ago, the Treasury lined up my demographic in its crosshairs and launched its latest projections at us in a destabilising barrage of post-Brexit pension statistics.

I might be feeling more cynical than usual but this latest “the end is nigh” pronouncement arrived promptly on the heels of the latest net migration figures, which were, as expected, catastrophically bad.

This is interesting timing bearing in mind another piece of analysis I read somewhere (there’s a lot of it about) that we, the over-50s, are statistically not only most likely to vote in the forthcoming EU referendum but are also most likely to vote to leave. Apparently this is down to two things: a misty-eyed nostalgia for Britain before straight bananas and concern over net migration. Well, you know what they say about statistics.

Statistics are, of course, the bedrock of analysis, and the Treasury’s analysis shows that if we leave the European Union millions of current and future pensioners will be worse off. Predictably Vote Leave, in the person of former Pensions Secretary, Iain Duncan Smith, said this is “utterly outrageous” and “cynical”.

I don’t know about you but given his record I find IDS less than credible on the subject of pensions or anything else really, which makes him an odd spokesperson to choose. But that aside, when you unpick the Treasury’s analysis, it’s broadly this: that leaving the EU would cause inflation to rise and that rise would erode the value of state pension increases to the tune of £137 per year, per state pensioner.

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However, let us not forget that, since 2010, the state pension has been pegged to keep pace with 1) inflation, 2) average earnings or 3) a minimum of 2.5 per cent (the famous “triple-lock”), thus ensuring it rises each year. If prices rise because of inflation then so will the state pension.

Perhaps more relevant is how the UK economy post-apocalypse – sorry, post-Brexit – would affect private pension pots. The Treasury’s analysis estimates that those with an additional pension worth £60,000 could expect to see its value drop by £1,900.

Someone aged 50 can expect to be worse off by somewhere between £223 and £335 per annum. That sounds like a piffling amount when you’re in work but let me tell you it’s not when you reach retirement – it’s more than a whole month’s grocery bill.

I daresay this part of the analysis is true, given that pension funds are invested in financial markets and financial markets aren’t good with unknowns. This week began with the pound at its lowest level for quite some time, largely down to the looming unknown of 23 June and what happens afterwards.

If Britain votes to leave, I have no doubt we can expect those conditions to continue for quite some time – much in the same way that everything is all over the place when you move house but eventually you find the corkscrew again.

In that scenario it’s just a case of slogging through it but, personally, if I was planning to retire at some point before 2020, I’d probably think it through carefully and consider whether it was worth waiting until a blissful state of whatever passes for normal has resumed. I wish I’d thought of that before I did retire a couple of years ago but that’s hindsight for you and another, longer, story.

Of course, what the Treasury hasn’t pointed out is what might be lurking somewhere, backed up in the EU bureaucratic pipeline. Obviously it wouldn’t benefit the Remain camp to explain the European Commission’s plans for occupational pensions, insurances, tax proposals, final salary schemes or anything else that could thwack a few hundred billion onto our pension costs. Or that our pension arrangements and schemes, state and private, are in a truly appalling state of chaos with almost every week bringing a new casualty to the doors of the Pension Protection Fund.

In short, I believe we are in a position not dissimilar to Butch Cassidy and the Sundance Kid: do we jump and hope it doesn’t kill us, or stay put and hope to dodge the bullets.

Oh dear. But remember this. All of it, all these hours and hours spent on spreadsheets, surveys and statistics to scare us to death, are spun from nothing more substantial than a set of assumptions. The Treasury analysis is based on the twin assumptions that inflation will rise and economic growth will slow. Not unreasonable but not hard fact either.

George Osborne’s statement that, “pensioners who have worked hard all their lives deserve dignity, security and certainty in retirement” is a fine sentiment but far from the reality for most. And voting Leave or Remain will make very little difference to that.