Brit expat retirees set to lose on sterling fluctuation

British retirees overseas may lose 20 per cent of their pension payments due to sterling fluctuations.

If you’re at the number-crunching state of preparing to become a British expat overseas, it’s wise to take into account the Brexit effect on the pound’s exchange rate. In the case of a no-deal Brexit, sterling is expected to crash, but even now it’s being pushed down by the lack of progress in the negotiations and the political chaos in government. Some 247,000 Britons living overseas receive their pensions in sterling and have no option but to convert to their local currencies by either withdrawing cash from local ATMs or by making bank-to-bank transfers.

One chilling example taken during the financial crash a decade ago tells it like it is, with the pound worth €1.48 in 2007, but dropping to €1.09 by 2009. A British retiree in Europe on a pension of some £2,000 would have seen a drop in annual income of 28 per cent from €2960 to €2120 over the two year period. It’s an interesting example of a worst scenario, but it shows currency stability in the future is far from certain. According to the financial advice sector Brits looking to retire overseas in the very near future should hedge against currency fluctuation risks by putting all or at least part of their savings in other currencies.

Deciding on a final location for retirement could well be influenced by the stability of its currency, especially if you’re planning to convert your entire pension pot to the relevant currency. For those with second homes in France, Spain or Portugal, the euro is the obvious destination for the money. According to the UK’s Office for National Statistics, of the 300,000 Britons now in Spain, around 50 per cent are over the age of 65 and are officially retired. Meanwhile, for expats already settled overseas, the threat of a hard Brexit can seem good news, as recent indexes suggest the uncertainty surrounding Briton’s property market is only going to get worse as the country’s economy tanks. The fall in London house prices over the past year is likely to spread across the country over the next two years, giving investors a good choice of bargain basement purchases, but the downside is that buy-to-lets already purchased will have seen a drop in their values.