On June 23, the UK will vote on whether to continue its membership in the EU.
We know it’s coming, but nobody knows the outcome and its implications. Your guess about the result is as good as that of anybody else.
The polls are tight, the confidence in the polls is low and many voters are undecided or might change their mind at the last minute.
Betting on the vote’s outcome is just that – a bet. Normally, when deciding on positioning your pension pot you should make rational, informed decisions; not gamble on the whims of political voters.
The only certainty is uncertainty
Even if you knew the vote’s result, nobody could predict with certainty the consequences of a Brexit.
The Leave camp would claim that after a short, unsettled period the UK would walk alone to a brighter economic future.
How short and how unsettled, no 'expert' can know. Some in the Remain camp forecast potential economic armageddon for an exit.
One thing’s for sure, we are likely to have a period of uncertainty if we Brexit – and financial markets dislike uncertainty.
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Defined benefit or defined contribution?
So, how should you Brexit-proof your pension pot? The answer, as always in investing, depends on your circumstances.
Are you a member of a defined benefit, or final salary, pension? If so, you can and should do nothing.
The scheme’s sponsoring employer should worry about Brexit.
If you are a member of a defined contribution, or money purchase, pension scheme, you may be able to reduce Brexit risk.
Your workplace pension scheme might not allow you to shift your investments. But if you can, or you hold a self-invested personal pension (SIPP), read on.
How far from retirement are you?
The next question is whether you are close to retirement or far away. If you're close and you plan taking out some savings soon, consider de-risking part of your pot.
If equity markets correct due to Brexit, you might not have sufficient time to wait for an eventual potential rebound after uncertainty abates. Avoid short-term equity investing.
If you are years before retirement and you truly have a mentality of a long-term investor, consider keeping your portfolio invested. You have time to earn back loses.
Remember that, even after retirement, some of your portfolio should remain invested to increase its real value in hopefully a long retirement.
Time is a luxury in investing.
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If you have a global portfolio
If you invest in equities via your pension, global investing is more relevant than ever. With Brexit, the British pound is likely to fall, as well as the UK equity market.
Overseas investments can benefit when translating returns into pounds. Reducing UK bias is one way to mitigate Brexit risk.
When choosing foreign markets, consider putting less in Europe. Its equity markets and the euro might suffer more than other markets and currencies due to Brexit.
Gilts are very expensive as markets have already priced in a possibility of Brexit. However, consider buying some gilts for protection.
You are likely to lose if the UK remains. However, if Brexit occurs a flight-to-quality into safe haven gilts and the likelihood of the Bank of England keeping rates lower for much longer should support gilt prices.
Think of it as buying some insurance.
If you’re an active investor
If you're an active investor and you lose sleep because of Brexit jitters, consider selling liquid equity holdings, and holding the proceeds in cash.
You might lose on a relief rally if the UK remains. However, a Brexit might be the first domino to fall, taking down the global economy with it.
Sometimes it’s better to be safe than sorry when faced with uncertainty. But don't regret it if the UK remains and markets rally until we have something new to worry about.
What the bookies think
Looking at it from a saving and investing perspective, no Brexit is a safer outcome. The bookies place Brexit as unlikely – although the odds of a Leave victory have shortened recently.
This might be another build up like we had before the Scottish independence referendum.
If you believe the bookies are always right, you could always do nothing and pray!
Yoram Lustig is the author of the new Financial Times Guide: Saving and Investing for Retirement. It is out now, priced £26.99 from FT Publishing, and available from Amazon.
The views expressed in this article are the author's own and do not necessarily represent those of loveMONEY. The information included does not constitute regulated financial advice.
More referendum articles from loveMONEY:
Chancellor warns of price hikes if we leave the EU