UK Pension Income Drops By 22% for British Expats in Europe. Move to a QROPS to Reduce Fluctuations
UK pension income drops by 22% for British expats who are living in Europe. This is the devastating effect that currency fluctuations can have on a pensioner’s income when a British expat decides to retire abroad in countries such as Spain or Cyprus. A move to a Qualifying Recognized Overseas Pension Scheme (QROPS) could reduce these currency fluctuations by moving your UK pension from GBP to EUR.
According to a Telegraph article published on the 18th of June, British expats living overseas have lost more than £10.6bn on their pension incomes since 2007 because of the weak pound.
The research which was carried out by HiFX showed that British expats living in Europe fared the worst, and that in April 2007 a monthly pension income of £441 was worth €656, but that it is now only worth €510 less than six years later.
That means that their fixed pension income dropped by 1,752 EUR per year or 22% over a six year period. For British expats living further afield in places like Thailand, their pensions have suffered even worse.
A British expat living in Thailand in 2005 faced an exchange rate of 75 Baht to the Pound. This fell to 48 Baht/GBP by June 2013 representing a fall of pension income of 36% for a British expat in Thailand whereas if you invested in the THD ETF in USD, you would have gained 97.44% over the last 5 years and furthermore, the USD had fallen less against the Thai Baht (only 18% for USD/THB Vs 36% for GBP/THB). The net effect would have been a much higher income rather than the lost income by keeping your pension in GBP.
Move to a QROPS (Qualifying Recognized Overseas Pension Scheme) to Avoid Currency Fluctuations Destroying Your Pension
You can move your UK pension to a QROPS to avoid 55% tax upon death whilst drawing your benefits and you would also avoid UK income taxes of up to 45%. You can also move your pension into EUR, USD, GBP or other currencies. This is particularly important at retirement age as normally you would plan your purchases from a fixed pension income.
Particularly in Europe, if you are a British expat living in Spain or Cyprus for example, it seems to make much more sense to move your pension to EUR in order to avoid currency fluctuations constantly changing your regular income.
In such circumstances, it makes sense to move your UK pension to a EUR denominated portfolio held in Malta. Malta has Double Taxation Agreements with most EU countries. In fact, Malta has 65 DTA’s with countries from around the world. You can then get your pension income paid in EUR, your QROPS can avoid income tax and taxes upon death whilst also being able to invest in equities related to the country you live in if you wish. The idea is to stop currency fluctuations on your pension income, avoid the UK tax net whilst having the freedom to invest in the funds, ETF’s, bonds, gilts, treasuries, precious metals (gold, silver, platinum, etc) or cash of your choosing.
For British expats living in the Carribbean and Latin American countries, many of those countries’ currencies are closely related or even pegged to the US Dollar, so it may make sense to hold your pension in USD. However, other countries more closely relate to the Pound. Please contact us for best advice.
Please email us for a free pension transfer analysis.UK Pension Income Drops By 22% for British Expats in Europe by Richard Malpass