WHY BREXIT IS A REALITY CHECK FOR US ALL
The day after the Brexit vote, it spooked the markets, sent the pound tumbling and caused the UK prime minister to fall on his political sword. At time of writing, the only certainty was the last one: David Cameron will resign in October, but the pound/euro rate has been up and down, and so have the markets. As they do, and will.
Last Friday morning the BBC was the first off the mark to try and answer that question (and you have probably seen other such articles in the ensuing days) and all of them have come to the same conclusion – nobody knows.
Over the last month this column received a number of emails and letters from readers about how a Brexit vote would impact on their UK state and personal pensions. They asked what would happen to their second homes or buy to let properties in the UK. They wanted to know what to do with their savings in UK bank accounts.
With so many close family connections between these islands, a few of you also raised the question of what to do with an Irish or UK inheritances, tax liabilities and one worried parent even queried whether they will face higher fees in September when their child returns to university in Northern Ireland.
The immediate fallout of last Friday’s vote is the sharp fall in the value of sterling. This means that the cost of goods and services here will be more expensive or British and Northern Ireland traders and visitors.
Irish people who are receiving a UK pension – and tens of thousands of people who worked in the UK and returned here in their retirement may be entirely or partly dependent on this income - might find that their next cheque or payment will buy them less if sterling is lower against the euro. It dropped by up to 10% early on the day after the vote, then it recovered…and fell again.
As you read this, sterling may or may not be up …or down against the euro, again. The only sure thing is that pensioners may have to tighten their belts, dip into their savings or find another source of income. Or not.
Anyone collecting rent from a UK-based property or from share dividend income or from a sterling capital gain can also experience a loss of income if the sterling exchange rate with the euro falls. The parents who already pay fees to a UK university will pay less if sterling falls against the euro and stays there.
Shoppers and holiday makers in the UK will also pay less if the value of sterling falls and stays down. This will boost UK business (and exporters) and its tourism industry. Can they adapt to higher import prices? If they can’t they will lose competitiveness, and lose business.
We’ve all been here before. Currency fluctuation has been frequent and sometimes brutal since the 1970s when currencies were completely decoupled from their historic anchor, gold. Brexit looks like being just another trigger for a major development in this long game of currency, trade and business ups and downs.
So what should we do, as individuals, about the UK leaving the European Union?
There is absolutely no point in anyone here wringing our hands about a decision we had no part of.
But what we can do is accept the reality of Brexit. And act in our own best interests.
Review your own finances. Know exactly how much your household earns, spends, the exact tax it pays. Find out exactly how much debt you own and its service cost. How much do you save and invest? Is it enough to meet your important life goals, like home ownership, your children’s education, your retirement?
If you can’t do this review yourself, or you don’t feel confident in doing so, seek out some independent, impartial help. Discuss your financial exposure to the UK with someone who is aware of UK property, pensions and tax. Check out the website of the Society of Financial Planners of Ireland (www.sfpi.ie) or contact an independent adviser –ideally a fee-based one – who comes recommended from a person you trust.
Irish businesses face competitive challenges and so do the rest of us. But Brexit is just one of the challenges ahead. A US recession in 2017 appears on the cards and the EU’s long, drawn out recession continues. Greece, and now Italy’s basket case economy are going nowhere.
Brexit has introduced some reality to the economic ‘la la euroland’ that has been fostered by politicians and their creatures in the Central Banks which was always going end badly.
There is now a two year window for the UK and EU to negotiate a realistic new relationship. You might want to move a little faster than that in preparing yourself and your family for whatever that outcome might be.
jill@jillkerby.ie