UK expats should reassess their pensions after Bank of England rate cut

04 Sep UK expats should reassess their pensions after Bank of England rate cut

Posted at 13:24h in Life in Qatar by WadminX

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The Governor of the Bank of England (BoE) recently enforced stringent measures to keep the UK slipping into recession after the call for Brexit. The governor intends to slow down the BoE’s growth forecasts from projected 2.3% to just 0.8% as part of a regime change to install confidence and support the country’s next move. As part of this strategy interest rates in the UK have been cut to a new record low to support the necessary adjustments to the UK economy.

Those with savings funds and pensions still in the UK must be proactive after the rate cut which is set to hammer peoples savings back in the UK.

What’s happened?

Interest rates have been cut to a record low of 0.25% (interest rates have not been at a level this low in the BoE’s 322-year history).
The BoE has injected £60bn of newly created money to buy government bonds, drive down gilt yields and force investors into riskier assets.
The BoE has pledged to buy £10bn of corporate debt issued by UK companies who make a genuine contribution to the UK economy.

What does this mean for my savings back in the UK?

Governor Carney has warned savers they will receive low interest rates for some time. He blamed global forces pushing down borrowing costs, and argued that the alternative is that more jobs would be lost.

Does this mean my UK pension will take a hammering as well?

Yes. Carney wants to stimulate the economy by bringing down interest rates yet is not acknowledging the negative impact these measures are having on the turmoil already in pension deficits.

Why do gilt yields affect my UK pension?

The driving down of gilt yields (British government bonds) is disastrous for UK pension funds. Pension funds are some of the largest investors in UK government bonds, because it’s believed they would offer a safe and reliable source of income to be used to pay out future benefits to retirees.

This sudden, fast collapse of yields has widened an already huge gap in the large pension funds that are sitting in the UK. These pension funds use the rates to estimate how much additional funding they will need, in order to meet benefit payments.

How bad exactly is the pension situation in the UK?

The Pension Payment Protection Fund (PPF) stated total deficits of the UK’s 6,000 private sector defined benefit pension schemes climbed by £24 billion last month alone.

What are my options as a British expat with a pension in the UK?

Expats have the option to move their scheme overseas to a SIPP (Self Invested Private Pension) QROPS (Qualifying Recognised Overseas Pension Scheme) to avoid the pitfalls of defined benefit pension schemes.

Once someone has transferred out of the DB scheme, there is a choice over the best way to use that cash. With annuity rates falling – also a consequence of low gilt yields – Investors need to understand that drawdown will be affected by low-interest rates and more market volatility expected post-Brexit.

A pension transfer sounds long-winded, is it?

Not for you! Globaleye offers turn-key solutions to arrange accordingly, all you need to do is give us a few key facts, so our pension specialists can analyse, show you your options and implement the best way forward to protect your pension. Since the interest rates are so low it means that transfer figures are very high so it makes financial sense to know your options now more than ever.

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