FAQ: How does Brexit affect you as a pension customer?
As a pension customer, it is easy to worry about the substantial drops in the financial markets following the results of the EU referendum in Great Britain. There is no doubt that the referendum results have struck the markets severely, but it is important to keep in mind that pension savings are long-term.
Therefore, PFA recommends that, as a pension customer, you stay calm. PFA’s investment experts are keeping a close eye on the situation, and already before the referendum, they took several precautions to protect the customers' savings.
Below, you can find answers to the most important questions about how the referendum results affect you as a customer with PFA.
How does the referendum affect your savings?
The stage is set for some turbulent days and weeks in the financial markets, which will also affect the market rate savings. Therefore, it is especially important to remember that pension savings are long-term, and at PFA, we recommend that you stay calm.
The British withdrawal from the EU is just one in a chain of events which affect the returns in both directions year by year. If you have a market rate pension plan, it means that the closer you are to retirement, the more protection you have against losses in the financial markets. If your retirement is further away, you may experience some greater return fluctuations, but, on the other hand, the effect of an event such as this one is limited seen over a long savings horizon, since there will be plenty of opportunities to regain the losses.
What to do as a market rate customer?
As a customer, you don’t need to do anything. We have some of the country’s best investment experts who are watching the investments in your pension plan closely in order to give you the best possible long-term return. Therefore, we do not recommend that our customers change their investment profile. If you change your investment profile each time there is a challenge, the timing will typically work against you. To sell shares in times of worry and buy them back when seemingly there are no risks and everything is well on the share markets is not profitable, so it is not a good idea in the long run.
What to do as an average interest rate customer?
If you have an average interest rate savings plan, you will be relatively unaffected by the British withdrawal from the EU. The large holding of bonds will act as a protective shield for your savings, which will therefore not be affected considerably. Therefore, you should not do anything.
How does PFA ensure that the customers are protected from losses as best possible?
We have some insurance in our portfolios which provides some degree of protection in relation to the drops on the share markets that we currently see. In profile A and B, we have a higher hedging of your risk than in profile C and D. If you have profile A, where the risk is smallest, the effects on your return will also be less significant. However, in return for this security, you can look forward to a considerably lower expected future return. If you have profile D, where the risk is greater, the referendum results are likely to affect your return more negatively in the short term. On the other hand, you stand to gain much more when the share prices rise again.
How will it affect the pension savings in the long term?
We will probably enter a period with lower growth, but hopefully we will avoid a greater financial downturn like the one we saw during the financial crisis in 2008. Therefore, the odds are good that in future there will be some developments in the investment markets that will compensate for the present losses. It is impossible to predict future events, but Europe as well as the rest of the world has an interest in minimising the effects of Great Britain leaving the EU as much as possible. And if we look in the direction of, for instance, the US, there are several positive signs in the financial developments.