How will the weak Pound affect UK pensions for expats overseas?

The day people never thought would come…. Britain decide to leave Europe! The campaigns and reasons for the leave vote have been heavily under scrutiny since the referendum date of the 23rd June leading to a petition for a revote. Behind the eye of the needle a lot of people will now feel as if they have been robbed of your vote. How this will impact the people of Britain and Expats living abroad is likely to have positive and negative effects. It is likely to make expats rethink their savings and investments to gain more control and certainty to secure a better retirement.

What concerns do people now face?

The first most obvious affect expats will have noticed will be the impact on the exchange rate. For anyone living abroad that has a UK pension could be significantly affected through the devaluation of the Sterling. If you are currently taking benefits from your pension, then you will have noticed the affect directly. This might haven’t even spurred you to not withdraw any money from your pension until the Pound appreciates as has been the case with many expats. The below chart shows the exchange rate between GBP and the EURO. The big red bar indicates the impact on the day of Brexit (7.5% fall).

Chart taken from CMC markets.

How will this affect the average person living in the UK?

If you live in Europe with a UK pension and are currently living from the income from your UK pension you will now get a lot less Euro’s from each withdrawal. Please see the impact below, assuming you withdraw £2,000 each month to cater your lifestyle:

December 2015:      €2,800 (£2,000 with an exchange rate of 1/1.40 – GBP/EUR)

22nd June 2016:     €2,600 (£2,000 with an exchange rate of 1/1.30 – GBP/EUR)

14th July 2016:     €2,380 (£2,000 with an exchange rate of 1/1.19 – GBP/EUR)

Within 1 year your pension value in terms of Euro’s has dropped by 15%. There’s a common phrase used by financial advisors which says “If something can affect your investments that you have no control over then it poses a bigger risk than anything you have control over”. In a nutshell this means risk can be mitigated and controlled with investments but if you live abroad and have a UK pension, you will have no control over the currency.

How can a QROPS help me?

The beauty of a QROPS is the ability to hold funds in the currency of your choice. This means you can have your funds denominated in GBP, EUR, USD or any other major currency worldwide. This gives you greater control over your retirement fund. So if you live overseas and have been affected by the current devaluation of the Pound or are concerned that it will affect you when you start to withdraw your funds, QROPS may be the solution you’re looking for.

Sam Barber, a Chartered Advisor at Alexander Peter Wealth Management commented “This has always been a compelling reason when looking at the benefits of a QROPS compared to leaving it in the UK. People have the impression that the Pound is always strong which just isn’t the case. Many clients who were due to take their pension commencement lump sum have put this on hold due to the poor exchange rate and in fact has increased the demand for QROPS significantly”.

For more information about QROPS and the benefits it provides, please download our QROPS guide or request a Free call from one of our advisors.