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No-deal Brexit: What will a no-deal Brexit mean for your pension?

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A no-deal Brexit or a final deal is the ongoing conundrum facing Britain and the European Union. Brexit uncertainty is reigning once more, with a no-deal Brexit threatening to impact many industries including financial services and international trade. Express.co.uk explores what a no-deal Brexit will mean for your pension.

Political commentators are more concerned about the possibility of a no-deal Brexit given Brexit negotiations were suspended on November 19.

Brexit trade talks between the EU and UK are at a critical juncture with just days remaining until a deal must be agreed to ensure it is ratified by the end of the year.

Experts claim this week was the final opportunity for a deal to be secured, but now this will be pushed back.

On Thursday, the EU’s chief Brexit negotiator Mr Barnier tweeted: “One of the negotiators in my team has tested positive for Covid-19.

“With [Lord Frost] we have decided to suspend the negotiations at our level for a short period.

“The teams will continue their work in full respect of guidelines.”

Although both sides have repeatedly said a deal is within grasp, Downing Street warned it is “entirely possible that negotiations will not succeed”.

Predominantly the reason for the delay has been the contentious issues of fisheries, the level-playing field and governance, where each party is unwilling to compromise.

Regardless of whether the UK and EU find a way to agree on these issues, Britain will leave the EU in full in a matter of weeks.

If negotiations are not finalised at that time, there is a serious risk of a no-deal exit.

What is a no-deal Brexit?

Britain formally left the EU on January 31, 2020, beginning an 11-month transition period which concludes on December 31.

The nature of a no-deal exit from the EU means the impact would be uncertain.

However, it is likely to mean the end of agreements consumers currently enjoy, for example, across financial services.

Britain would also automatically revert to World Trade Organisation trade rules.

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

A no-deal Brexit could affect you differently depending on your personal circumstances.

UK-based retirement

If you have saved into a pension pot and do not want to retire in the UK, a no-deal Brexit is unlikely to impact whether you can draw your pension.

In the short term, Brexit uncertainty may impact the UK economy and stock market which could, however, have an effect on your pension investments, depending on where your pension is invested.

Some argue a no-deal Brexit could inspire global trade and boost the UK economy in the long-term, but in the short term could cause some disruption.

Given the effects of the coronavirus pandemic on the UK economy, trading under WTO rules could slow Britain’s economic recovery generally, thus diminishing investment rates.

Without investment, the companies underpinning returns on your pension may not perform as well or grow as quickly.

This could mean shares are valued less highly and profits are lowered, which could reduce your retirement income.

If your pension is invested in companies that profit overseas, in theory, your pension pot should increase comfortably.

However, if it is invested in UK companies where profits may be hit by uncertainty, the pension pot earnings may drop.

Retirement abroad

If you are a Briton living abroad in the EU, you may be affected by a no-deal Brexit.

Those retiring abroad are vulnerable with their State Pension and their private pension.

Currently, Britons living abroad receive private pension payments into their bank accounts set up in their country of residence.

But these arrangements may be affected by a no-deal Brexit as they are contingent on reciprocal EU laws and regulations between UK pension providers and European banks – a process known as passporting.

A no-deal Brexit would put an end to passporting, as a British pension provider would not automatically have the right to make payments in the recipient’s home country.

Those who choose to avoid this disruption by getting their pension paid into a UK bank account and transferring it over to their European bank may be affected by the changes in exchange rates and costs of transfers.

The main potential issue for State Pension claimants living abroad is that the UK currently has a deal with the EU that anyone living within the European Economic Area (EEA) will see their state pension increase with the cost of living.

However, this agreement comes into question with a no-deal Brexit.

The EU appears keen for this agreement to remain in place after a Brexit deal is signed, but there is no guarantee until the deal is agreed and ratified.

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