British expats who rely on pensions to pay their day to day bills have had a rollercoaster ride over the past 10 years.
Among the worst off are the tens of thousands of Brits who have escaped to Europe and are at the mercy of swings between the pound and the euro.
The exchange rate has peaked between more than just over one to nudging over 1.5 euros to the pound during that time.
For those relying on a pension paid in sterling, the impact on spending power makes budgeting and saving difficult.
Breaking financial rules
The exchange rate issues also break one of the cardinal rules of financial planning which states retirement income should be paid out in the currency where the retiree is living.
Take the example of someone receiving payments from a workplace pension of £10,000 to convert into euros has had to deal with these rises and falls in their income:
- June 202005 – £10,000 x 1.50 = 15,000 euros
- December 292008 – £10,000 x 1.02 = 10,200 euros
- July 242012 – £10,000 x 1.29 = 12,900 euros
- March 112013 – £10,000 x 1.15 = 11,500 euros
- March 112015 – £10,000 x 1.42 = 14,200 euros
A Qualifying Recognised Overseas Pension Scheme (QROPS) is one way to introduce more certainty into retirement income planning – and to start applying that foreign currency cardinal rule.
QROPS can beat exchange rate problems
A QROPS helps retirement savers escape from the volatility of foreign currency exchange rates. That time checking rates for the best time to switch or biting the bullet to take less money than would be liked because the cash is needed are wiped away.
The offshore pensions pay out in a selection of major currencies, not just sterling and euros.
They also pay benefits gross, depending on the financial centre where the QROPS is based. Some, deduct a nominal tax amount, such as 2.5% in Gibraltar.
This allows expats to pay income tax at local rates where they live.
The illustration shows pound to euro exchange rates, but works just as well for any volatile currency exchange rates against the pound where a pension saver is looking for more of an even financial ride.
Check out your pound v local currency exchange rate history
Further QROPS Information and Guidance
For more information about QROPS and the benefits it provides, download the iExpats QROPS Guide or complete the Get Advice form.
