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Expat Investor : May June 2009
RETIREMENT INCOME Protecting your pension against the fallng pound David Kerns, Personal Client Dealing Manager, Moneycorp, explains how retired expats can protect their pension income against sterling’s fall against other major currencies. Retired expats have seen their cost of living rise by around 20% over the last 12 months, as the falling value of sterling makes it ever more expensive for émigrés to fund their lives overseas. The pound has fallen in value against the euro and, as a result, many retired émigrés will have to sell up and move back to the UK because they can no longer afford to pay their mortgage. Even those who can afford to keep their home abroad are having to make sacrifices as they see their spending power diminish. According to the UK’s Department for Work & Pensions, there were 252,000 Britons living overseas and claiming British state pensions in 1981. By 1991 this figure had risen to 594,000 and in 2006 the figure topped a million. Although not all British retired émigrés live in the eurozone, many will be heavily affected, as most major currencies have appreciated strongly against sterling in the past year. The fall in the value of the pound has also had a negative effect on those still looking to retire. Moneycorp has seen enquiries from people aged 55+ who are looking to move overseas fall by almost a third in the past year (February 2008 – February 2009), compared to the same period the previous year. There has been a significant drop in enquiries from people looking to move to Cyprus (–32%) and Spain (–22%). Over the last 12 months the value of the pound has fallen by 16% – from £1.33p to the current level of £1.12p. This means someone converting £10,000 into euros today would be €2,100 worse off than a year ago. The last six months have presented the sharpest drop, with sterling down 12% – from £1.28p to £1.12p. So, if someone was converting £10,000 into euros now compared to six months ago, they would be €1,600 worse off. In contrast, some countries, such as Australia, New Zealand and Canada, are increasingly attractive options for British pensioners looking to move overseas. Enquiries from British people looking to move to Australia and New Zealand have increased by 40% over the last year. While this rise can be partly attributed to English being the first language, and, in some cases, a warmer climate, the value of sterling against the Australian dollar has risen by 3% over the last year. This means that someone transferring £10,000 into Australian dollars now would actually be $715 better off than if they had made their payment a year ago.However, the pound has since started to weaken against the Australian dollar. Should this decline continue, we can expect to see a drop in the number of people moving to Australia and New Zealand. British retirees are now more aware of the rising costs of living abroad and are carefully considering the benefits of moving overseas. With sterling’s decline an even greater determining factor, they are left wondering how they can ride the wave of currency volatility and make their pension funds go further. While many pensioners already living abroad are suffering because of market fluctuations, they could also be losing out on up to £200 million a year through using high street banks to transfer their payments – due to poor exchange rates and high transfer fees. To avoid these extra costs, they can sign up to a regular payment plan and take advantage of better rates, as well as the automation of their transfers via direct debit. The Moneycorp Regular Payment Plan ensures that funds are fully automated, thus removing the hassle of regular overseas transfers. Opening a trading facility is free, and from just £4 per transfer, or £8 for a premium ‘fast track’ transfer Simple and easy savings Choose from exclusively online 2.76 % eSaver Offshore Online application and secure access to your account online Gross p.a./AER (variable) Save for same or next day delivery, retirees can save money compared to making one-off payments with the high street banks. There are also different options available, which can help protect you from adverse currency fluctuations by fixing either the sterling amount, the foreign currency amount, or both. Retired émigrés should also put ‘forward contracts’ in place, allowing them to lock into favourable exchange rates for up to two years – so they won’t have to worry about adverse currency fluctuations. A forward contract allows you to buy or sell currency at a fixed rate of exchange, which can be delivered at a later date. Forward contracts can be used to lock into favourable exchange rates, or to simply protect you against adverse currency movements – something which is important in today’s volatile currency markets. Some people will prefer not to commit their entire requirement to forward contracts straight away as they would then not benefit from better exchange rates if they did become available in the future. However, with currency markets constantly fluctuating and future prices notoriously difficult to predict, the opportunity to guarantee your rate is hugely beneficial. The outlook for sterling is uncertain and its value could continue to weaken throughout 2009. Analysts suggest that the euro is massively overvalued, so pensioners in the eurozone can expect their situation to improve. Save by phone, post or online 2.50 % Select International Apply by post and manage your account by phone, post fax or online To Apply Now Call +44 (0) 1624 641 888, or click www.alil.co.im/ads/3expat Alliance & Leicester is now part of the Santander Group, which has more than 150 years’ experience in banking, and more branches worldwide than any other international bank. Full terms and conditions available on our website. Minimum balance £15,000. Maximum balance is £1,000,000. Minimum withdrawal £5,000. Withdrawals available without notice or interest charge. Withdrawals may be made free to a UK, Channel Islands or Isle of Man bank account by BACS payment (3 to 5 working days). eSaver Offshore (Issue 2) Accounts must be applied for and operated online. No cash or cheques. Email address is compulsory. 1 free BACS withdrawal per quarter. Charges apply for other types of withdrawal. Select International (Issue I) Apply by post. Manage your account by phone, post, fax or online. No cash deposits or withdrawals. BACS available only via MyBankOffshore. Rates correct as at 21 May 2009. Interest paid annually on 31 December. Gross is before any deductions. AER - Annual Equivalent Rate illustrates the interest rate if interest was paid and compounded each year. Interest may be paid free from tax offshore depending on your country of residence for tax purposes. EU Savings Tax Directive rules apply to EU resident customers. Alliance & Leicester International Limited is part of the Banco Santander, S.A. group of Spain which includes Abbey and Alliance & Leicester in the UK, which are regulated by the UK Financial Services Authority. Alliance & Leicester International Limited places funds with other parts of its group and thus its financial standing is linked to that of the group. Depositors may wish to form their own view on the financial standing of Alliance & Leicester International Limited and the group based on publicly available information. The latest report and accounts for Alliance & Leicester International Limited are available at www.alil.co.im and the group report and accounts at www.santander.com. Alliance & Leicester International Limited is a member of the Depositors’ Compensation Scheme as set out in the Compensation of Depositors Regulations 2008 (as amended). Alliance & Leicester is the registered trade mark of Alliance & Leicester plc. Alliance & Leicester International Limited, PO Box 226, 19/21 Prospect Hill, Douglas, Isle of Man, IM99 1RY, British Isles. Incorporated in the Isle of Man (No. 81918C). Licensed by the Isle of Man Financial Supervision Commission to take deposits. IOM0123 May/June 2009 ● EXPAT INVESTOR 7 Gross p.a./AER (variable) Access your money when and how you like
March April 2009