Weaker Pound Slashes Expat Pensions

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Weaker Pound Slashes Expat Pensions

With encouraging economic data for the UK indicating that the nation’s economic recovery is becoming increasingly robust the Pound has strengthened against peers like the US Dollar and Euro since the start of 2013. However, the British currency is still trading notably below the historic averages recorded prior to the onset of the global economic crisis in 2007.

One foreign exchange company recently compiled exchange rate data in order to ascertain which retiring expats have been worst affected by the weaker Pound.

According to the results, UK pensioners living in Canada have borne the brunt of the Pound’s tumble.

With its varied climate, outdoor lifestyle, welcoming populace and close proximity to the US, Canada has become an increasingly popular emigration destination over the last decade, rising to the position of second most aspired to location for retired Britons.

Australia is the only nation to beat Canada in terms of popularity, but the nature of the pension system in both nations has had a significant impact on how much money the retired receive.

As with nations like South Africa, British expats retiring to Canada have their state pension frozen at the time they retire, meaning that the amount they’re entitled to stays the same despite increases/decreases in inflation.

The Expat Money survey used figures arrived at by taking the British state pension (as of April 2007) and comparing the amount receivable then (when the Pound was trading strongly) with the amount receivable now, based on current exchange rates.

On the same principle, we asked foreign exchange provider TorFX to work out how much pensioners are missing out on in the two most popular expat destinations with frozen pensions, and these were the results.

In 2007 the state pension came in at £87.30 per week for a single person. The following amounts are based on a pension frozen at this level.

Canada

Based on the GBP/CAD exchange rate at the time, £1 was worth CA$2.27, making a monthly pension worth CA$792.95 in 2007.

Since then the GBP/CAD exchange rate has fallen to CA$1.67, making the same monthly pension worth CA$584.49 in 2013, a difference of CA$208.46 a month or CA$2501.52 a year.

Australia

Based on the GBP/AUD exchange rate at the time, £1 was worth AU$2.43, making a monthly pension worth AU$848.55 in 2007.

Since then the GBP/AUD exchange rate has fallen to AU$1.71, making the same monthly pension worth AU$597.13 in 2013, a difference of AU$251.42 a month or AU$3017.04 a year.

The situation in South Africa, on the other hand, is slightly different as domestic concerns have seen the Rand plummet against the majority of its most traded rivals.

South Africa

Based on the GBP/ZAR exchange rate at the time, £1 was worth R14.36, making a monthly pension worth R5014.51 in 2007.

Since then the GBP/ZAR exchange rate has risen to R16.53, making the same monthly pension worth R5772.276 in 2013, a difference of R757.76 a month or R9093.19 a year.

As this example illustrates it really pays to research expat pension entitlements in the nation you plan to emigrate to. A little forward planning can also save you a considerable amount of money.

Firstly, by using a currency broker to handle your monthly pension payments rather than a bank you can save hundreds of Pounds a year in commission and transfer fees.

Secondly, if you’re retiring to a nation which freezes pension payments and intend to transfer your assets overseas you may wish to safeguard your funds from currency risk by fixing a favourable exchange rate.

This can be done up to a year in advance of a trade and means that your money won’t be affected by negative shifts in the currency market.

If you’re not sure how best to handle your foreign exchange requirements, get in touch with a reputable currency broker like TorFX, talk through your plans and come up with the easiest and most cost-effective solution for your needs.

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Laura Barrett
This post was written by
Laura moved from the US to the UK several years ago. As a corporate sales executive for a leading foreign exchange company, Laura has expert knowledge of currency movements and market trends and is able to offer specialist guidance regarding making a trade at the most lucrative time and protecting transactions from currency risk.