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Emigration: Pension and currency double whammy for expats - Hannah Beecham, ExpatMoneyChannel.com

Pension and currency double whammy for expats

Before you up sticks for a new life overseas you need to think about how you are going to finance it, advises Hannah Beecham.

British expatriates living on UK pensions were dealt a miserable blow in March by the European Court of Human Rights who ruled that the British government had not breached human rights by failing to bring pensions in line with the cost of living. The ruling means that British pensioners living in countries which do not have reciprocal agreements with the UK, such as Australia, New Zealand and Canada, are not entitled to have their pensions index-linked.

The current rules mean that a pensioner who paid National Insurance contributions throughout their working life, but moved overseas and took a pension from 1995 still gets only £59.20 per week, compared to the current basic state pension allowance of £95.25 per week.

Despite this, we Brits are thinking of abandoning poor old Blighty in ever increasing numbers. Indeed, the chances are you're reading this because you're one of the in-crowd, or should that be out-crowd? Nearly half of Brits - that's 42% to be precise - over the age of 55 are considering spending your Autumn years abroad, according to recent figures by the Foreign & Commonwealth Office (FCO). And it seems a significant number of would-be expats fail to make their dream of a reality because they are not making adequate financial preparations for the new life says the FCO.

Currency exchange specialist MoneyCorp confirms this. Their research shows that some 70% of expats already living in the Euro-zone fear they’ll have to return home, tail between their legs, because they’ve failed to take into account the havoc currency exchange volatility can wreak on their day-to-day spending. In short, with sterling at an all time low against many of the world's currencies, expats who haven't factored in exchange rate negativity can no longer afford the new life-style and are forced to repatriate.

Most of us are only too aware that sterling's fortunes have plummeted against the euro - two years ago in the Eurozone you would have been handed €1.46 for your £1, today you'd collect just €1.09. It doesn't matter where you're headed, it's the same sorry story the world over. Looking for a new life down under? Your pound will buy you Australian $1.65 - two years ago it would have been A$2.37. Fancy Thailand? A pound bought 64.52 baht 24 months ago, it barely tops 49.15 baht today. Canada on your mind? The pound has plummeted from Canadian $2.25 to C$1.53 over the same period. Currency broker HiFX calculates that for a couple in New Zealand, they’re NZ$716.49 worse off each month. A British pair in America misses $444.72 each month, and Euro-zone retirees are down €164.71, due to sterling's fall.

These figures speak for themselves. And, no, there isn't a pundit anywhere who's suggesting that sterling is on the brink of a major renaissance. So, if you don't want to be outrun by fast moving exchange rates, you'll need to keep an eye on the relationship between sterling and the currency you'll be jangling in your pocket a lot more closely in the years ahead.

Know before you go is the motto of the story. So, before you shake the dust off your shoes and step upon new shores, check the list of countries where pension payments are not index-linked. It's long and includes some of the most popular expat locations - Australia, South Africa, New Zealand, and Canada. A full list of countries that have a reciprocal agreement with the UK can be found at www.pensionsadvisoryservice.org.uk/state-pensions/living-overseas. If you do plan to live in any of these countries then you will need to think about how you will supplement your British pension. In addition you should check out any entitlement you may have to a pension in the country where you plan to settle.

Also, if in your new life you need to retain ties to sterling - whether it's your pension income or investments which are sterling-derived - you cannot afford to ignore rates. Check what the brokers are saying about longer-term trends and get to know the key factors - UK interest rates, for example - which could precipitate exchange rate volatility.

When you are converting sterling into another currency, one way of minimising the exchange rate impact is by shopping around for the best currency deals rather than simply opting for services offered by your bank. You can do your research on the internet, comparing a handful of regulated brokers to ensure your business goes to the one that is offering the best service and the best price. Some brokers will also allow you to fix the price of sterling, which can help you plan ahead as you will know how much you will be receiving over a given period. Costs and fees will differ between brokers, but rest assured the deals they'll be offering will be better than the best currency exchange tariff of any high street bank.

Finally, if you want to find out more about your pension entitlements home or away, go to www.direct.gov.uk/en/BritonsLivingAbroad/index.htm. Also check out the FCO's information service for expats at www.fco.gov.uk/livingabroad

Hannah Beecham

Hannah Beecham is one of the founding editors of the first comprehensive personal finance website for British expats. www.expatmoneychannel.com. She has appeared on TV and radio and is one of the most experienced and best known financial journalist writing for the British expatriate market.

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