Is a no deal brexit likely to adversely affect pension savings in short term?

ML65

My pension pot is currently worth approx. £35k and I plan to take this as a cash lump sum spring 2021 at the latest. I can move the money into a cash fund to ensure the value doesn't decrease but I wonder if this is necessary and I would lose out on any further gains in the next 6 to 9 months. On the other hand I don't want to lose out in the short term if a no deal brexit happens at the end of the year and this has a negative impact just when I need access to the fund. Any thoughts anyone?

Malthusian

Unexpected no deal Brexit = fall in Sterling = sensibly invested pension funds will rise in Sterling terms, as they did when the UK voted Leave in 2016. (Although your Sterling will buy less of anything made outside the UK, i.e. almost everything, so in reality nothing happens.)

If you plan to spend the £35k in 2021 then most people would cash it in now, because it's a complete gamble whether it will go up or down. And Brexit is virtually irrelevant to that gamble unless you're overinvested in the UK.

Diplodicus

Not altogether correct, Malthusian.
It is right to assume that no deal Brexit will result in a fall in sterling but investors would only be protected against that loss if stock markets around the world perform worse than  London. For the last four years they have - on average - performed better than the U.K. indices, so it is not the case that for Brits sterling depreciation is offset by a rise in asset values.

Thrugelmir

No concerns over the impact of Covid then? Potentially a far greater danger. 

Moe_The_Bartender

I would hazard that a no deal Brexit is already priced in. You can’t second guess the currency markets any more than you can the stock markets.

Diplodicus

“You can’t second guess the currency markets” - Nothing could be further from the truth. As far as  sterling goes the Fx Mkt has been entirely predictable, hour by hour for four years: every indication of a more fractious Brexit has made £ weaker, every hope of an accord has raised £.  In an uncertain world, only death is more predictable.

And the Mkt reacts in logic: no deal is a lose/lose situation, but disproportionately damaging to the U.K. economy.

AnotherJoe

ML65 said:

My pension pot is currently worth approx. £35k and I plan to take this as a cash lump sum spring 2021 at the latest. I can move the money into a cash fund to ensure the value doesn't decrease but I wonder if this is necessary and I would lose out on any further gains in the next 6 to 9 months. On the other hand I don't want to lose out in the short term if a no deal brexit happens at the end of the year and this has a negative impact just when I need access to the fund. Any thoughts anyone?

What's it currently invested in?

bowlhead99

Diplodicus said:

Not altogether correct, Malthusian.
It is right to assume that no deal Brexit will result in a fall in sterling but investors would only be protected against that loss if stock markets around the world perform worse than  London. For the last four years they have - on average - performed better than the U.K. indices, so it is not the case that for Brits sterling depreciation is offset by a rise in asset values.

That doesn't make much sense.

If a no deal Brexit results in a short term fall in sterling as you and Malthusian suggest (and I wouldn't disagree with that either), the UK based investors (who presumably hold a mix of assets across UK and foreign stock markets - the 'sensibly invested pension fund' as mentioned by Malthusian) will not need 'stock markets around the world' to 'perform worse than London'. The fall in the value of sterling against other currencies would mean that the portion of the investors' pension fund which is exposed to non-sterling assets or incomes would be worth more sterling than it was worth before the fall in sterling.

If sterling falls, the investors' foreign asset exposure is worth more sterling. I don't understand why you say, 'investors would only be protected against that loss...' when it is a gain rather than a loss; and even if it was a loss I don't see how having 'stock markets around the world perform worse than London' would save a UK-based investor from a loss. If he holds a mix of UK and non-UK assets within his pension fund, as most of us do (and as default workplace pensions and professionally advised pensions would), it is not going to be a particular advantage for the non-UK assets to perform badly; having your overseas investments do worse than domestic investments is not something that would 'protect against' a loss. 

Whether stock markets around the world perform better or worse than London stock markets would not be the determining factor in whether someone currently holding investments in their pension should cash out of the pension early or wait until next year when we will have a better view of whether we are getting an unexpectedly no-deal form of Brexit. For the investor who intends to take their pension as a cash lump sum by next Spring, they are not considering whether UK or ex-UK stock markets will do better, but are  simply evaluating a choice between being remaining invested in a mix of stock and bond markets within the pension (as the investor presumably is at the moment) until next Spring, or making the assumption that the pension investments will be worth less next year and moving to cash earlier.

I seem to be missing something in your explanation, or perhaps you are not explaining it very well.

Diplodicus

Sorry for any lack of clarity in my previous post.
Malthusian implied that a Brexit induced fall in sterling would cause a compensating hike in asset prices. 
This has not been the case for the past four years - stock markets around the world have risen in line or better than U.K.  
To bring it back to the concern of the OP, converting his pension to cash £ pending a no deal Brexit would not be a zero-sum game; if £ sterling falls because of Brexit (most likely) there should be no expectation that Brexit will boost £ assets faster than others, so that “in reality nothing happens.” That, from the experience of the last four years, would be a false comfort.

Thrugelmir

Diplodicus said:

This has not been the case for the past four years - stock markets around the world have risen in line or better than U.K.  

STOXX Europe 600 is in essence unchanged over the last 4 /5 years.  

Interesting insight into the S&P 500.
https://www.yardeni.com/pub/yardenifangoverview.pdf

Moe_The_Bartender

Diplodicus said:

“You can’t second guess the currency markets” - Nothing could be further from the truth. As far as  sterling goes the Fx Mkt has been entirely predictable, hour by hour for four years: every indication of a more fractious Brexit has made £ weaker, every hope of an accord has raised £.  In an uncertain world, only death is more predictable.

And the Mkt reacts in logic: no deal is a lose/lose situation, but disproportionately damaging to the U.K. economy.

You must have made a killing then. Well done.