Expats urged to review retirement planning as rates rise

UK inflation jumped again last month as it moves closer to the Bank of England’s prediction of a peak of 7.25% in the spring. The Consumer Prices Index (CPI) reached 5.5% in January, up from 5.4% in December, according to the Office for National Statistics (ONS). With inflation now moving towards three times the UK central bank’s target level of 2%, pressure is growing on the Bank to control spiralling prices with more interest rate hikes. The BoE has recently carried out two consecutive rate hikes, and more could be on their way. John Leiper, of Titan Asset Management, commented: “Whilst the Bank of England was one of the first major central banks to start raising rates in the face of higher and persistent inflation, it too remains behind the curve. Today’s print for January inflation will do little to sway that narrative or deter the BoE from an additional 25bp hike at its March meeting, which would be the first time the bank has raised rates in three consecutive meetings since 1997.”

Inflation and expat pensions

The UK’s rising interest rates could have an impact on British pre-retirees with UK final salary pensions living in abroad who are considering a transfer of their retirement savings. This is because higher interest rates push down final salary transfer values. “Currently, these values are still around all-time highs, but anyone with a UK pension needs to be aware that one of their biggest financial assets may be starting to fall in value,” says Sara Lucas, Executive Wealth Manager at deVere Australia. “This could seriously impact their retirement. Unfortunately, many could be forced to ‘downsize’ their future plans.” Therefore, she says that British pre-retirees should sooner rather than later “consider whether a pension transfer is right for them before interest rate hikes slam an enhanced window of opportunity shut.”

Overseas pension schemes

Since being launched in 2006, Qualifying Recognised Overseas Pension Schemes (QROPS) have been the most popular form of UK pension transfers. They are pension schemes based outside the UK that meet HM Revenue & Customs (HMRC) rules to receive transfers from UK-registered pension funds. Schemes only make the HMRC list if they meet terms similar to UK pensions, including not being accessible before age 55. When retirement funds are transferred, they’re not typically subject to inheritance or income tax in the UK and you can often benefit from a much lower tax rate. Other major advantages include that you can consolidate multiple schemes into one which will be easy and sometimes cheaper to manage; assets can be held and income drawn in a currency of your choice, and a flexible and wide range of funds to suit your circumstances.

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