The crashing pound has hit the nearly 5 mln British expats around the world, many of whom affected disproportionately hard, a senior executive at a leading financial advisory and fintech has warned.
The pound collapsed to its lowest-ever level against the U.S. dollar in recent weeks, and has fallen, too, against the euro and other major currencies, said James Green, Investment Director at deVere Group, noting that since the beginning of the year, sterling is down 18% against the dollar and around 4% against the euro.
“The pound – which was already one of the year’s worst performing currencies – has been pounded hard after the UK government unveiled the most radical package of tax cuts since 1972, and huge spending increases, which raised concerns about Britain’s unaffordable debt levels and the likelihood of even higher inflation,” explained Green.
The developments have triggered a surge in enquiries from worried UK expats, including tens of thousands in Cyprus, who are directly affected by movements in the British currency.
“The volatility of the pound hits hard those expats who still receive retirement income in sterling,” said Green, adding that it makes already soaring living costs in their adopted countries significantly higher.
“In addition, the government’s radical plans also make it more likely that the Bank of England will intervene by further hiking interest rates next month. This will hamper them if they try and mitigate the pain by transferring their pensions outside of the UK as the hikes push down final salary transfer values further.”
When retirement funds are transferred into an overseas jurisdiction, one can choose the currency to be paid out in, they are not typically subject to inheritance or income tax in the UK and, after paying initial tax on transfer, they may benefit from a much lower tax rate.
There’s also flexibility around lump sum or income payments; on death, a whole pension fund can be passed to the heirs; one can consolidate multiple schemes into one that will be easy and sometimes cheaper to manage.
“The UK government’s plans have proven to be a masterclass in the Law of Unintended Consequences – one of which is that an increasing number of expats are looking to take their pensions out of the UK to safeguard their hard-earned nest eggs,” James Green concluded.