Brits living overseas are now moving to a QROPS (Qualifying Recognized Overseas Pension Scheme) in order to protect their pension from the looming Eurozone crisis and possible exit of Greece and Spain from the Euro. Quantative easing by the Bank of England and the fed has led to a devaluation of fiat currencies. This printing of money has led to record low annuity rates. A move of a pension into a QROPS means that you can avoid buying an annuity and safeguard against the Euro crisis by investing in a range of bonds, equities, precious metals and implementing alternative strategies to hedge against inflation. For those who don’t wish to move their pension out of the UK, there is the option of using a UK SIPP to avoid the purchase of annuity. A SIPP doesn’t have the protection from the 55% tax upon death whilst in drawdown that a QROPS does. You would also pay UK income tax.
Safeguarding against the Eurozone Crisis for Your Pension
Stock prices around the world are tumbling. Global stocks have lost over $3 trillion in market value in May 2012. While the S&P 500 is down 9% after peaking on April 2, losses in overseas markets are substantially steeper.
Developed market stocks are down 14% from their 2012 highs while emerging market stocks are down a larger 17%. Political & economic uncertainties in Europe, fears of a slowdown in China, and worries of the U. S. economy losing momentum are driving down markets.
Technical measures like relative strength index suggest stocks are deeply oversold.
Meanwhile, the Federal Reserve has now hinted that it is ready to pursue additional stimulus measures if the economy loses momentum.
Remember the last time the Federal Reserve flexed its muscles with Operation Twist. The stock market took off. In fact, stock prices zoomed higher by 27% over the next six 6 months.
This additional printing of money by the fed along with IMF’s calls for the Bank of England to cut its interest rates will force annuity rates even lower. A QROPS strategy can be implemented to allow freedom of investment and spread risk through diversifying your portfolio. This should help protect you from the Eurozone crisis.
Deficits in FTSE350 companies’ pension funds have soared to an alarming £92 billion, according to latest estimates, thanks largely to the escalating turmoil in the Eurozone. Shell ended the ‘final salary era’, as companies raced to offload pension schemes. The oil giant was the last FTSE 100 member with a scheme open to everyone. The move is part of a much wider trend, with only 19 per cent of final salary pensions open to new members compared with 88 per cent in 2000. Britain’s 6,500 final salary pension schemes are collectively £255 billion short of the assets they need to meet all their promises in full, according to the Pension Protection Fund.
This means they would have only 80p in the pound for the pensions due if they had to pay the pension of every worker today.
This is a massive problem and as markets take a turn for the worse, these company pension schemes will become a real problem. For those who have a pension in the UK and are considering moving abroad or already live overseas should look into moving to a QROPS. This is especially true if you hold a pension scheme from a company where the pension fund defecits are greater than the market cap of the company.
Brits abroad. British abroad and tax avoidance
Over 1 in 10 Brits live abroad. For those lucky few, you have the right to exercise an option to move your pension overseas to avoid UK taxes, particularly the 55% tax upon death and up to 40% income tax.
Consider the following:
• According to the IMF, European banks as a whole are leveraged at 26 to 1 (this data point is based on reported loans… the real leverage levels are likely much, much higher.) These are a Lehman Brothers leverage levels.
• The European Banking system is over $46 trillion in size (nearly 3X total EU GDP).
• The European Central Bank’s (ECB) balance sheet is now nearly $4 trillion in size (larger than Germany’s economy and roughly 1/3 the size of the ENTIRE EU’s GDP). Aside from the inflationary and systemic risks this poses (the ECB is now leveraged at over 36 to 1).
• Over a quarter of the ECB’s balance sheet is PIIGS debt which the ECB will dump any and all losses from onto national Central Banks (i.e. Germany)
So we’re talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1.
And all of this is occurring in a region of 17 different countries none of which have a great history of getting along… at a time when old political tensions are rapidly heating up.
A move to a QROPS or a SIPP increases your investment options, reduces your taxes and may be able to provide you with a form of protection from buying an annuity and a slide in Eurozone equities.
For more information, please send enquiries to firstname.lastname@example.orgBritish Expats Move Their Pensions to QROPS to Safeguard Against Eurozone Crisis by Richard Malpass