British Prime Minister Theresa May’s Brexit strategy is becoming clearer – but millions of expats across Europe are waiting to hear how her plans will impact their pensions.
The referendum uncertainty has led to a spurt of inquiries about switching from a UK pension to an offshore Qualifying Recognised Overseas Pension Scheme (QROPS), but is the time right and is this a good move for expats?
Of course, only time will tell, but Sterling collapsed by up to a fifth against a basket of major currencies.
The result is a wealth gap for expats between those with Sterling denominated onshore pensions and those with foreign currency payments from QROPS.
While the pound has slumped against the Euro (-13%); US dollar (-17%), Australia (-17.8%) and Canada (-20.1%), spending power has grown for those receiving payments in these currencies.
Spending power
Pensioners picking up their cash in pounds and then converting to a local currency are suffering a severe loss of spending power.
Switching a UK pension fund into an overseas QROPS allows an expat to receive their pension cash in the local currency.
Don’t forget a pension is long-term saving and although the pound performed terribly in 2016, the opposite is true for 2015.
Pension developments in the UK may spark some retirement savers to consider switching as well.
Tata Steel is asking thousands of workers to invest their pensions in the company and their jobs rather than defer and save the cash for their retirement.
Weighing the risks
The Royal Mail has signalled a last post for the company’s final salary scheme and construction industry pensions for plumbers are close to collapse over underfunding issues.
To escape their final salary pension liabilities, some FTSE350 companies are offering workers up to 30 times their annual salaries to switch their pensions elsewhere.
Moving a pension is a serious financial exercise.
Savers in a final salary scheme must weigh the risk of losing a guaranteed, index-linked retirement income against investing the cash in a QROPS, SIPP or personal pension with no guarantees and no index linking.
Anyone thinking of such a move needs to take professional advice from an IFA.
