British expat retirees warned over leaving pensions in sterling
The average pension pot for UK expat overseas is around £210,000, but currency fluctuations may cause losses of 20 per cent.
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.
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