Will pensions be hit by Brexit?

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House prices lower, unemployment higher, real incomes down, a year long recession and now, poorer pensioners.

It might seem but a short wait for the Four Horsemen of the Apocalypse, given the amount of gloomy economic analysis that has been published on what may happen should Britain vote to leave the European Union.

All the different effects are actually derived from one significant starting point - that the economy would be smaller if the UK left the EU relative to where it would be if "remain" won on June 23.

On this issue, with varying degrees of pessimism, there is widespread - though not total - agreement among economic institutions from the International Monetary Fund to the Bank of England.

Whether that effect is short-term or long-term is more widely disputed.

A snapshot

The main challenge for today's pensions analysis is that it is a snapshot which takes little account of how different parts of the economy might react if there were a downturn.

It is difficult to model all the "dynamic" effects of a shock to the economy, but they are often the most important factors when considering how different sectors will be effected.

On trade, most economists agree that moving out of the single market will negatively effect Britain's economic relationship with what is left of the EU.

It is also argued that British exporters will find it difficult to replace that trade by increasing economic links with countries such as America and China, particularly in the first few years.

But when it comes to pensions, the direct relationship between a smaller economy and the value of pensions is less easy to quantify.

"Ambitious" forecast

As Tom McPhail of Hargreaves Lansdown says, understanding the complex dynamics in play is "ambitious".

Some might say foolhardy.

First, if there were a recession, would the Bank of England raise interest rates?

Although the Bank has been studiously unclear on what its response might be, if interest rates did rise that may be good for pensioners as returns on annuities - the basis of many people's pension wealth - would rise.

Though of course, if inflation also rose as some predict, the value of that pension would be eroded.

Second, if markets in the UK did fall then those funds investing pension assets could seek to find better returns elsewhere.

Asset investment is a global business.

Third, there is the question of EU regulation, often at the heart of a long and uneasy relationship between the UK's huge and global pensions industry and Brussels.

How would that relationship change if Britain were out of the EU and would that help or hinder UK pension providers?

No simple analysis

Yes, as Mark Wilson, the highly regarded chief executive of Aviva, one of the UK's largest pension firms with major interests across the EU, says uncertainty tends to "spook markets".

And if the value of shares falls dramatically, that can have a negative effect on pensions.

But, in the complicated, interconnected world we live in, relationships between the many moving parts of the economy are not always amenable to simple analysis.

Particularly when it comes to our pension pots which are invested over many decades, not just one or two years.

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