Retirement Savings Lottery For Expats

The question for expat savers is what is on the cards for 2014 as the Bank of England hints interest rates may finally move off the 0.5% rate where they have wallowed since March 2009.

The problem rate setters have to weigh up is the benefits of a rate change to savers against the disadvantages upping the rate will bring to mortgage payers and business borrowers.

It’s right for the government to protect jobs and homes in times of economic harshness, but at the same time, policy makers are forcing everyone to take more responsibility for paying for their retirement but failing to give them the tools to do the job.

Investment decisions

Expats tend to keep their retirement cash in one of three places –

  • Cash in an offshore savings account
  • Invested with a UK onshore pension
  • Invested offshore in a Qualifying Recognised Overseas Pension Schemes (QROPS)

With drawdown, all work in a similar way, accruing interest while allowing regular withdrawals after reaching retirement age – except for savings accounts which are also accessible to people under retirement age.

Investment decisions retirement savers have to make involve predicting movements for cash deposit interest rates and for markets and other underlying investments for pensions.

Reinvesting cash is a particular problem for savers coming out of savings fixed terms of three years or more, who will find rates have halved while their money has been locked away.

Read our insights and find out what countries have the lowest retirement age.

No guarantees

Just 24 months back, the best five-year fixed rate was 4.5% on £10,000 investment with Lloyds TSB International. That slipped to 2.25% on £20,000 with Permanent Bank International 12 months ago. Now, the best is 2.75% from Skipton International for a minimum £20,000 investment.

What happens to interest rates depends on the Bank of England. Governor Mark Carney has already suggested rates may start to rise when the unemployment rate hits 7%. Currently, the rate is 7.4% and may dip to the target 7% later in 2014.

If the rate rises, offshore savings rates may rise – but there’s no guarantee as one of the key financial changes following the banking crisis has been the unlinking of bank and building society interest rates from the official rate.

Another boost to offshore savers is falling inflation across the European Union, giving more spending power for money on held on account. The latest average inflation figure for December across the EU is 0.8%, according to Eurostat, the official statistics agency.

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