What You Need to Know About the Upcoming 2019 General Election and How It Will Effect Your UK Pension
Mary Hill, a 73-year-old retiree from Manchester, was all set for a worry-free retirement following a full working life of saving carefully for the future. But Mrs. Hill, who worked as a human resources administrator for 36 years as part of a long and distinguished career, is now being forced to reconsider her plans after hearing Jeremy Corbyn’s election bid.
What does the Labour Party’s stance have to do with your UK pension?
The Labour Party’s plan to nationalise major companies like BT could threaten British pensioners just like Mrs. Hill across the board. Private pension funds of more than six million people are in jeopardy, pending the outcome of the upcoming general election on December 12.
Why? Reversing more than thirty years of privitisation in the UK, Jeremy Corbyn’s Labour Party plans to nationalise major firms — including many utility companies where pensions are currently invested.
What happens when companies are nationalised?
When companies are nationalised, the government buys the stock back from shareholders at face value. Then, the government would take that money from pensioners and purchase government bonds on the pensioners’ behalf. And guess who would set the price for those bonds? Parliament.
Investors, as well as their pension schemes, are left essentially booted out of the market. With no choice in the matter and no control over what happens to their savings, which they’ve worked hard to accumulate for a long time—so much careful saving and retirement planning—all taken over by the government and cashed in for government bonds.
How does state control affect your UK pension?
For pensioners, there are problems with both ends of the equation on this raw deal set forth by Labour. First, they’re left at the mercy of powerful corporations and the government, that are essentially deciding for them when to sell their lifelong earnings. “Face value” can sway dramatically, and we all know that volatility is not a pensioner’s best friend. Folks living on a fixed income need stability and consistency, not market swings, and vulnerability.
Secondly, while a pile of cash may sound tempting, it’s not a smart way to plan for a worry-free retirement. If you’re a pensioner, then you already know the value of investing your money—it grows over time without having to do much at all. Prices go up, and what seemed like a lot of money at first could be worth far less in a matter of a few short years. No, most smart savers would rather see their money right where they put it: in their pension pots.
What happens when your pension fund is booted out of the stock market?
So, why not just convert the bonds to cash and then reinvest the money and carry on, business as usual? But is this a good time to be investing? The stock market has been on a tear for a decade now, and it’s largely considered to be one of the best runs since the 1800s. Since 2009, it has gained more than 300 percent.
But many say the stock market’s momentum may soon be running out. One red flag is the recent spate of buybacks, when publicly-traded companies buy their shares back from investors. Essentially, it’s investors pulling out of the market, which is not a healthy sign. The bull market may soon be coming to an end, signalling falling share prices, lower dividends, and losses for many investors.
And that includes pension funds, which currently invest heavily in many of the private firms that Labour is seeking to nationalise.
The companies that Labour wants to renationalise are probably in your pension pot right now!
Jeremy Corbyn and Rebecca Long-Bailey have seemingly good intentions in mind. With promises of universal improvements like free, high-speed internet for everyone and lower energy prices, their election bid sounds truly wonderful.
However, their plans are based on the government’s taking back large utility firms, among other companies. The National Grid, Scottish Power, and SSE, for example, would come under state control. So would rail companies, Royal Mail, and more. Some call it a “fire sale”, implying an “everything must go” approach to pricing. The bottom line is that it will result in bad buyback prices for investors. That is a risky proposition for pensioners, who don’t have a lifetime of investment before them to recoup any losses they’ll take.
In case you weren’t aware, it’s extremely common for pension funds to be invested in blue-chip utility companies. That’s because they’re seen as stable–something that all pensioners need their retirement investments to be!
BT is a blue-chip utility that is slated to come under state control if Labour wins. It’s a very popular investment in pension portfolios. In fact, the majority of people with invested pensions have some money in BT right now. BT gives dividends from its annual profits. According to the Labour Party’s manifesto, nationalising the company would mean profits would no longer go to shareholders because there would not be any of them anymore. Instead, profits would go to the government.
But wouldn’t all that lost money from dividends go somewhere?
The election will determine what happens to many of the UK’s major firms, but it will do more than that. The lost dividends that pensioners would suffer wouldn’t be returned to them. Labour proposes taking those profits that were formerly handed out to investors (many of whom are pensioners right now), and investing them in other ways. For example, profits could go toward funding the green economy and renewable energy.
Labour’s plans to renationalise these large companies would risk impoverishing pensioners.
Currently, BT has a market cap of £18.50 billion, which is currently equivalent to $23.86 billion in USD. The company is reporting over £23 billion in revenue ($29.5 billion), which is a lot of dividend income for pensioners that simply wouldn’t be there any longer if Labour won in the election.
If you’d like to find out what you can do to safeguard your worry-free retirement in light of the upcoming elections, we can help. With an expert-level knowledge of UK pensions, transfers, and factors that affect both, Tim Carroll has been helping overseas UK pensioners for decades. Please contact Tim, and he’ll be happy to schedule you a free, fifteen-minute consultation. Or stay informed on this and other pressing pensioner topics by signing up for our newsletter.