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UK election: A tight race with potentially major impacts for pensions – expert

UK electionThis is the transcript of a radio interview between Carrick Wealth’s Mike Potts and Gareth van Zyl of BizNews. Listen to the full podcast here.


This podcast is brought to you by Carrick Wealth. I’m speaking to Mike Potts, who is a Director for Retail Sales at Carrick.


Mike, you’ve written some interesting pieces for us recently on the UK and its upcoming election. Just to give a backdrop for our listeners out there, why is Carrick eyeing what’s happening in the UK so closely?

Yes, thank you for that Gareth. We keep our eye on the UK elections very heavily from a South African perspective with our clients because we have a lot of people who have contributed to British pensions when they were working over there and they’re now living in South Africa. So, legislation can get changed quite significantly, particularly pension legislation, when it comes to elections in the UK, so we need to keep abreast of political developments over there on a day-to-day basis, but also keep an eye on the effect on the Sterling. Many of our clients have Sterling-based portfolios and the election can have a significant effect on currency.


There’s been some interesting town hall type debates in the UK over the weekend with the two leaders from the Tories and the Labour Party. What did you make of the debates and what they said?

I think we have to take “debating” in inverted commas, because it wasn’t necessarily a debate. You know, that’s what the main parties wanted, excluding the Tory Party, but of course Theresa May didn’t want to take part in a group debate and so we saw her and Jeremy Corbyn taking part in questions from an audience individually. I found it quite fascinating really. I think the winners of the Corbyn-May questionings were probably the audience. I think the audience really held their ground well. They asked some really interesting questions.

There were obviously some big passionate thoughts from the audience. There were some very interesting questions on Trident, the nuclear deterrent in the UK, to Jeremy Corbyn. I think this probably is a weak point for him and a lot of people though. I think he probably just beat Theresa May from a performance perspective. She didn’t do as well as him, I don’t think. And then of course, the tragic terrorist attacks meant that there was no campaigning at all on Sunday and they started again yesterday.


How do you think that those terror attacks are going to affect the upcoming election and also the investment sentiment towards the UK – as well as the impact it could have, for example, on the Pound?

Yes, I think Corbyn’s tried to say that the Tory cutbacks on policing have been one of the reasons why terrorist attacks can happen more and Theresa May’s probably saying more along the lines of, “I’m tougher on terror, I’m tougher on crime than when I was Home Secretary”. So, they’re both trying to make an item of that. How will that affect the voting on Thursday? It’s really hard to gauge. You know, the polling companies haven’t done fantastically well in trying to gauge elections in the US and Brexit and so they suggest things are very tight. I wouldn’t be surprised if they did have an effect on votes. Which way that’s going to go is really hard to tell.


Do you think that it’s too close to call at this point in time?

Yes, the polls have found that there’s a point gap that’s closed to something in the region of four points in Tory’s favour. If they’re correct, then it’s a big yes, then it is really close to call. I would still think the Tories are going to win. I think the big question is by how much of a majority. The markets seem to want firm stability, and so a hung Parliament or a smaller Tory majority – markets probably wouldn’t like that. They’d probably react better to a Tory majority, I would think.


Talking about some of the other issues at play during this particular election, can you tell me what the dementia tax is and why it’s become such a big issue in the UK?

It’s become a big issue in the UK because a lot of people, when they look to potentially have to go into homes in the UK, they have to sell all assets and properties to pay for that private care. The Tories mentioned how they believed that would work in their manifesto, and then it became bigger, or one of the main reasons probably why the gap closed on the polls. Theresa May seemed to perform a U-turn and she was questioned about that on Friday night and didn’t really come back with anything clear to answer either. So you know in British politics, U-turns as they are known are frowned upon significantly and she’s getting a bit of a reputation as somebody that changes their opinion. So yes, that’s why there’s been so much talk about it in the UK.


Amid a possible political change, what could be the impact on pension rules as well?

Well, from a pension perspective, there was a massive change in March this year where, normally the HMRC (HM Revenue and Customs) will consult with industry over a period of time and then make decisions, but in March this year they announced that legislation court formally known as QROPs (Qualifying Recognised Overseas Pension Scheme), that anybody wanting to utilise that pensions legislative transfer pension, that if they moved the pension to a country where they’ve worked or were resident, there will be a 25% penalty on that.

So, from a South African perspective, a great deal of South Africans work in the UK and a great deal of Brits are over living in South Africa now, as am I. That massively affected them because if you wanted to move your pension outside of the UK to a jurisdiction, such as Gibraltar for instance, you couldn’t do that anymore without incurring a 25% tax penalty and so that pretty much in virtually all circumstances made that a no-go for clients. That affected South African residents who have worked in the UK significantly in March and so yes, we keep a very close eye on the UK elections because of those things.


What do you tell your clients in terms of navigating this seemingly changing environment? What’s the kind of advice you give them basically?

The advice that we give clients is that they should stay very close to their financial advisor and check that the financial advisor is abreast of these changes and fully aware of the implications. What we see is that very rarely are these sorts of changes retrospective and so for instance, if you had moved your pension into a QROPS in Gibraltar prior to March this year, there is no 25% charge that will happen retrospectively, but there are other options. You know, we saw in the UK, the pension deficit, pension crisis in the UK is growing to the point where Baroness Altmann, who is the former Minister for Pensions in the UK, she moved her final salary scheme quite publicly into a self-invested personal pension (SIPP) a year or 18 months or so ago, so again, we help give clients best advice and to know what their options are. So, is it best to keep their pensions in a certain UK scheme or a different UK scheme more relevant for them, and that’s what we help them with.


This podcast is brought to you by Carrick Wealth.


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