Lowest-Ever U.K. Interest Rates a Blow for Retired British Expats

by Ray Clancy on August 6, 2016

The decision by the Bank of England to cut interest rates to its lowest ever rate of 0.25 per cent is set to be a blow to expat pensioners, many of whom rely on their savings and investments to meet everyday living costs.

It also means that what savings they have will work even less for them with savings accounts, for example, bringing in very low levels of interest or no interest at all.

flag-ukThe move will hit millions of British expats who have retired overseas, according to Nigel Green, chief executive of independent financial advisors deVere Group which specialises in expat money.

‘This really is a toxic combination for millions of people who rely on pensions and savings. Not only do British expats face the same serious challenges of pensioners and savers in the U.K., they also have to deal with the impact of a falling pound,’ he explained.

‘The drop negatively hits their fixed income, meaning that life becomes more expensive in their countries of residence.’

Some banks are already paying zero per cent interest on some accounts and the Financial Conduct Authority says that more savers than ever are earning nothing or next to nothing on money in so-called easy access savings accounts. Other banks have signalled that they are considering zero rates.

For example, HSBC pays no interest on some accounts when customers access their savings, in order to discourage them from removing their funds. For it’s subsidiary First Direct, e-Savings accounts – which closed for new business in 2008 – pay no interest for any calendar month when withdrawals have been made. At the Post Office Spokesman, some accounts require a minimum £500 deposit and do not pay interest if the account’s amount falls below this mark.

Experts also point out that the unprecedented low rate means it is now the worst time in history to be making a retirement decision. For example, those looking to buy an annuity could effectively be locked into these super low rates for life.

Pension savers who want to guarantee a retirement income for life have seen annuity rates adjusted downwards at least a dozen times since the U.K. referendum and advisors believe they will fall even further.

Annuity rates have plunged by about 37 per cent since 2008, and the trend reveals a more marked drop in value for the contracts bought by retirees with their pension pots.

‘Annuity rates keep on falling and there’s no sign of when they might stop,’ said a spokesperson for online financial supermarket Hargreaves Lansdown.

‘For many investors, buying a mix of annuities while leaving some money invested might be the best way forward.’

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