British expat retirees warned over leaving pensions in sterling
A recent analysis of the plunging pound’s effect on British pensions paid in sterling on behalf of UK expats living overseas gives bad news for the estimated 247,000 Brit retirees living abroad. Put bluntly, pensions held in sterling but drawn in foreign currency via ATMs or bank to bank transfers are permanently open to currency exchange fluctuation risks. In the past, changes to the pound’s valuation against other currencies have lost pensioners at least 20 per cent during periods of volatility.
One scary example of how not monitoring sterling against the chosen country of retirement’s currency shows just how much spending power can be lost in just two years. At the beginning of 2007, one pound was worth €1.48, but by January 2009 it had fallen to just €1.06. On a £2,000 a month pension, a retiree living in an EU member state would have initially received €2,960 a month, dropping to €2,120 two years later. Given that the exceptional nature of the fall was linked to the 2008 financial crisis, it’s an illustration of the worst scenario but it’s also a warning that currency stability in the future is a long way from being guaranteed.
Those planning to retire overseas in the fairly near future should begin hedging against the risk of currency fluctuation by designating either all or part of the pension amount in different currencies. The best strategy is to decide on your preferred retirement destination and transfer your entire pension to the relevant currency. If you’ve already purchased a second home in Spain or France, the euro is the obvious choice, and will also give you room to change your mind to another European Union-based retirement hub. Whatever your decision, those still holding their pensions in sterling need to take a long hard look at the possible consequences to the pound of a no-deal Brexit crash out of the EU.
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