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British expats in Eurozone now getting more from their pensions

by Ray Clancy on July 9, 2014

British expats living in the Eurozone have seen their state pension increase by 10% in the past year due to beneficial exchange rates, new research shows.

This means that the value of the UK state pension when paid in euros is now at an all-time high, with the increase largely due to the soaring value of the pound against the euro, according to a study by Prudential.

MONEYandHOUSE

The value of a UK pension (paid in Euros) is at an all-time high

UK Pensioners will now find that their annual income from the basic state pension is around €7,344.44, a rise of €661.24 since this time last year.

Prudential’s analysis also shows that 26% of the increase is a result of the rise in the basic state pension to £113.10 a week from £110.15 a week in April 2014. However, the bulk of the gains seen by expat pensioners have come from the soaring value of the pound against the euro.

The pound was worth €1.25 at the end of June compared with €1.17 at the same time last year. The value of the pound in relation to the euro is now back at a level not seen since November 2012 and is substantially higher than the low of €1.14 experienced in March 2013. Eurozone expat pensioners now receive 26% more in euros from their basic state pension than they did five years ago, the equivalent of a pay rise of €1,530 a year.

‘The relative strength of the pound means that expat pensioners have effectively benefited from a pay rise over the last year. However, if they are totally or heavily reliant on the state pension for their retirement income it is important not to fall into the trap of overestimating its buying power,’ said Paul Fidell, investment expert at Prudential.

‘Anyone considering retiring abroad should also be aware of the risks posed to their income by currency fluctuations and an unfamiliar tax regime. A consultation with a financial adviser or retirement specialist should help them to prepare a plan to deal with these risks. There is also some free impartial information available from the International Pension Centre,’ he explained.

He pointed out that the changes to pensions and how people can take their retirement income, which were announced in the UK Budget in March, will provide savers and retirees with more choices. ‘However, they don’t alter the fundamental fact that the best way to secure a comfortable retirement is to save as much as possible as early as possible in your working life,’ he added.

Retirees in the UK, and those in countries having a bilateral agreement with the UK, can expect a boost to their basic State Pension every April when the UK Government increases its value in line with the ‘triple lock guarantee’. This means raising payments by whichever is the greater of inflation, earnings or 2.5%.

All of the countries in the Eurozone have a bilateral agreement with the UK and this year’s April increase resulted in a rise of €3.27 per week for expat UK pensioners living within the zone, with the strengthening pound adding another €4.52 a week.

The latest available UK Government figures show that in November 2013 almost 445,000 UK expat pensioners receiving the state pension lived in a Eurozone country.

 

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