Is now the best time to put your feet up?
Spain, Ireland and France are the most popular destinations for British expats. For those who are paid in sterling, their salaries’ and pensions’ purchasing power are now worth significantly less against the euro.
For much of last year the pound was worth between €1.35 and €1.45 but now it is about €1.18 – a fall of at least 13 per cent in the value of many of those expats’ UK pensions. Of course those in receipt of Irish Pensions over here will find a boost to their pensions’ buying power.
Remarks by Bank of England Governor Mark Carney in which he committed the Bank to doing whatever is necessary to respond to the Brexit fall-out have led the City to believe there is a 78 per cent chance of a base rate cut imminently, and an 86 per cent chance of a cut by August.
The price of Government stocks (gilts) has already risen here in the UK as well as Europe and the USA as a result of money flowing into safe havens and away from property and equities. As a result the yield, or interest, on these stocks has fallen to all time lows and is even at negative rates in many countries.
This affects those who are about to retire because the annuity rates, on which pension payouts are based, have dropped to their lowest levels ever. Even enhanced annuity rates, available for those whose lifestyles and health are sub-optimal, have fallen. This does not affect those in final salary schemes.
Those who are about to retire should now seriously consider delaying their retirement, either in full or in part.
An annuity is not necessarily a good option at this time, but things might improve in a year or so. Income drawdown is becoming a more and more viable proposition. A good idea – for some, not all – is to delay taking your State Pension.
For every year of delaying your pension, it will increase by 3 per cent in payment. This is a far better return than any savings account will provide and one that should be seriously considered.
Those who have already retired and who are in receipt of their pensions will be less exposed to these recent annuity rate changes.
As someone who often has to explain the small print behind apparently simple financial products and the potential long-term consequences of their choices, I must day, on a personal note, that it absolutely scandalous that the full short term economic effects of Brexit were not fully explained to the British public – many of whom voted to leave the EU but who did so unaware of what would happen to them financially.
Retirement is one of the most important decisions we will all have to face in our lives.
Now, more than ever, it is important to make the right choices. To do that, one needs to be able to make informed decisions.