Will the Cyprus Bank Crisis Affect British Pensioners and QROPS Transfers?
The Cyprus bank crisis continues to drag on. What was originally intended to be a quick solution is slowly unraveling into bigger and bigger haircuts for depositors. Originally a one off levy of 9.9% for sums of more than 100,000 EUR and a 6.75% on smaller amounts was floated. Locals reacted angrily and even an excavator was parked at an entrance to banks. Capital controls were soon introduced and depositors could only withdraw small amounts of money from the bank.
Well, after much deliberation, they decided not to tax the little guy, preferring a 20% levy on the two main banks: the Bank of Cyprus and Laiki Bank; whilst foreign banks would face a 4.5% levy. This also got rejected and an even worse deal has emerged. Depositors could now lose up to 60% of their savings and instead of a levy, the banks will offer shares which may never return capital. On top of this, the Financial Times has been reporting on widespread corruption with nearly 20% of all deposits withdrawn in February before the crisis and Russians being offered to get their money off the island, but incurring hefty sums.
Cypriots and foreigners can only take 1,000 EUR when they leave the country. Expect suitcases to be loaded.
Sofronis Clerides, an economics professor at the University of Cyprus, said: “Most of the damage will be done to businesses which had their money in the bank” to pay suppliers and employees. “There’s quite a difference between a 30% loss and a 60% loss.” With businesses shrinking, Cyprus could be dragged down into an even deeper recession, he said.
Well, the offshore financial status of Cyprus has had the nail firmly hammered into the coffin. It will no longer be a tax haven and British expats looking to protect their hard earned pensions from the Inland Revenue who take 55% upon death (if you are drawing a private pension) and who also take UK income taxes which are as high as 45% (2013) will need to look to other onshore financial destinations such as Malta and New Zealand. Anyone who was in the old Cyprus QROPS will be protected under the old rules and won’t be punished for unauthorized payments as long as no more UK tax relieved monies are added into the QROPS. Members can either stay put in Cyprus or move to somewhere like Malta which is also in the EU and has over 65 Double Taxation Agreements which can severely reduce your tax burden if you live in Europe. But, questions have been asked over Malta as well.
What Will the Effect of the Cyprus Banking Crisis Be on Malta QROPS?
Malta has a large financial system and banking system much like Cyprus. However, Cypriot banks had massive exposure to Greek debt. However, according to the President of the Central Bank of Malta, the assets of Malta’s major banks amount to” just below 300%” of gross domestic product, which by international standards was “within normal limits,” Josef Bonnici told the Times of Malta. Overall bank assets are around eight times GDP.
Malta is seen more as an onshore financial destination.
In fact, according to the Central Bank of Malta’s Financial Stability Report, the five core Maltese banks hold assets that are only 223% the country’s GDP, which is half of Europe’s average. The Maltese core banks are nowhere near their Cypriot counterparts: they are smaller, more conservative and generally risk-averse.
You can read more about understanding the bank crisis in Cyprus and Malta’s banking structure here.
The real problem with what happened in Malta though is that the ECB has set a precedent that it will do whatever to save big banks and take that money from depositors. Suddenly, people are getting jittery about holding money in banks and in Texas, they are even asking for their gold back from the Federal Reserve. You can read the story in the New York Times .
British expats looking to avoid taxes in the UK and protect their pension can move to Gibraltar or Malta. Those worried about a spreading contagion throughout Europe and are really risk averse can transfer to New Zealand. They can then buy ETF’s backed by real silver and gold deposits if they are worried about fiat money.How Will the Cyprus Bank Crisis Affect British Pensioners and QROPS Transfers? by Richard Malpass