WHY STAYING IN EUROPE COULD HARM YOUR PENSION
After Osborne warns of risk to pensions if Britain leaves EU, experts now say...
Pensioners were last night told they face losing ‘dramatic’ sums of money if Britain votes to stay in the european Union.
The warning flies in the face of George Osborne’s claim that Brexit would cost every pensioner up to £32,000 – and asserts that the real threat to retirement incomes is a vote to Remain.
Experts highlighted a Brussels directive which requires insurers to increase their cash reserves to guard against the risk of insolvency. Even though it has only been partially implemented in Britain, it has already driven down the rates on annuities, which millions of workers have to buy to turn their private or company pension pots into an income for life.
Experts say that if Britain stays in the EU, it is likely to be extended to cover final salary company
schemes. State sector schemes won’t be affected. Last night, industry experts said this was not the only threat to pensions from a vote to Remain on June 23.
They also warned of the risk of a eurozone collapse, which could see the UK having to bail out southern EU nations and hit the value of investments.
By contrast, a vote to Leave would free pension funds from stifling Brussels red tape. They could even receive a ‘boost’ from a fall in the value of the pound which may result from a Brexit.
Iain Duncan Smith, the former work and pensions secretary, warned that the insolvency directive could end up costing British pensioners £400billion.
‘The solvency directive will come back again, that is certain, and that will cost British pensioners a huge sum of money,’ he said. ‘The only way to save pensions is to vote to leave the European Union.’ The warning came as: A former boss of HSBC set out the economic case for leaving the EU – saying it would shelter the City of London from a future eurozone crisis;
The Chancellor’s claim that families would be worse off by £4,300 a year as a result of Brexit was savaged by MPs;
David Cameron suggested that mass migration from the EU was a price worth paying for not ‘wrecking’ the economy.
The Chancellor triggered anger on Thursday when the Treasury published its analysis just hours before the start of the ‘purdah’ period, when civil servants are banned from helping ministers out on their pro-Europe campaign.
It claimed a vote to leave the EU would lead to rising inflation, turmoil in financial markets and plummeting asset prices, hitting savings and investments. It said pensioners could lose between £18,000 to £32,000.
Yesterday Mr Osborne said: ‘You’d see the value of the basic state pension go down in real terms. You’d see the value of your things like your family home and your savings fall, and if you’re saving for your retirement you’d have less money when you do retire.’
Mr Duncan Smith, however, dismissed the Treasury analysis as an outrageous attempt to ‘scare pensioners’. He was backed by a series of experts.
Alan Higham, independent pensions expert and founder of website Pensionschamp, said that in the past five years the EU rules had meant that annuities have collapsed by 23 per cent, according to data firm Moneyfacts.
Other experts said pensions could get a boost with Brexit because of a fall in the value of the pound – and because we will no longer be bailing out southern European economies.
Jason Hollands, director of investment broker Tilney Bestinvest, said: ‘Any impact on pension pots [of Brexit] will be very short-term. The markets often go through knee-jerk reactions and then bounce back. That’s all this will be.
‘Seven pounds in every ten earned by companies in the FTSE 100 come from overseas. If the pound falls, which is likely if we have a Brexit, they may even get a boost.’
Peter Hargreaves, founder of FTSE 100 pensions advice firm Hargreaves Lansdown, who is a Brexit donor, said: ‘The big risk to our pensions is being in the EU and the cost of bailing out the economies in Southern Europe, which are all completely bust.’
Alex Waite, partner at consultancy firm Lane Clark & Peacock, said: ‘The EU has brought a lot more bureaucracy to pensions. When I ask people in the pensions industry whether it is better to be inside or outside of Europe based on pensions alone – they always says it’s better to be outside.’
Malcolm McLean, senior consultant at actuarial firm Barnett Waddingham, said: ‘The real problem is that the EU has created a lot uncertainty around pensions – which is bad for companies and for savers.’
Insurers have already been hit by the solvency directive which demands they keep a large amount of cash on their balance sheets in
‘Plummeting asset prices’
case of crisis. This has caused payouts on stock-market linked pensions to fall.
Most company pension schemes were spared the crackdown after the UK successfully fought for a reprieve. Now, however, the tough requirements are back on the table for company pensions as part of new set of regulations currently being negotiated in the EU.
If these rules are passed they would heap an extra £400billion
‘Generous final salary schemes’
cost to fund generous workplace final salary pension schemes. This type of pension is not linked to the stock market and simply offers workers around two thirds of their final pay packet when they retire. Up to 1.75million private sector workers would be hit if the new solvency rules came in, experts say.
In addition, the commission is pressing ahead with plans for the harmonisation of the supervision of occupational pension funds – which could also have a harmful effect, because they are designed for the rest of Europe, not Britain.