British expats have a far greater pension spending power than stay-at-home retirees, according to new research.
Expat financial specialists say expats have an average pension pot of £210,000 – based on a 12-year study.
But figures from pension providers in the UK put the average UK pension pot at between £35,000 and £38,000.
The analysis by Hoxton Capital Management warns that expats could see as much as £10 billion wiped off their wealth due to foreign currency fluctuations if they leave their pensions denominated in Sterling.
“In January 2007, one pound was worth 1.48 euros, a figure that had dropped to only 1.06 euros by January 2009. This means that on a £2,000 per month pension the client would have received 2,960 euros a month in 2007 and just 2,120 euros a month two years later,” said Chris Ball, a managing partner at the firm.
“That’s a difference of 10,080 euros a year to an individual’s budget, which is a significant amount of money.
“People planning to retire abroad can mitigate against the risks associated with currency fluctuations by thinking about when they are likely to retire and should hedge against currency risk by holding part or all of the pension in different currencies. In addition, individuals should regularly review their pension and retirement options to make sure they are still relevant, ideally, on a quarterly basis.”
Converting to a QROPS
Ball explained that converting a UK pension to a SIPP or to the Qualifying Recognised Overseas Pensions Scheme, much of the currency uncertainty in retirement can be circumvented.
“One of the key benefits of a QROPS is ‘choice of currency,” said Ball,
“Yet most pensions are left in Sterling, leaving those who do not intend to retire in the UK exposed to the volatile currency markets throughout their retirement.
“Retired expats with pensions in the UK have no choice but to convert their Sterling-based pension income into the local currency, which results in them getting a different amount of local currency each time. This means they can end up with less money than they had bargained for, which makes it impossible to budget. Converting from one currency to another on a regular basis is not an efficient way for an expatriate to manage retirement income.”