Monthly wrap: How the long-term impact of coronavirus could affect your overseas retirement plans

Currencies Direct July 10th 2020 - 3 minute read

For many it almost feels like time has stood still over the past few months as the disruption caused by the coronavirus pandemic brought life to a standstill.

But now, as we can see the light at the end of tunnel and more countries emerge from lockdown, we are starting to think about getting our lives back on track and planning for the future.

But for anyone planning an overseas retirement, the long-term repercussions from the coronavirus crisis are likely to be felt for some time to come.

Governments seeking to cut costs

Probably one of the most talked about consequences of the coronavirus crisis is the long-term impact on the global economy.

The lockdowns imposed by most countries have brought economic activity around the world to a screeching halt over the last quarter and leaves us facing the worst global recession in decades.

In an effort to prop up their economy and save jobs, many governments have embarked on unprecedented fiscal spending projects, such as the UK government’s job retention scheme, which is currently paying 80% of wages for workers furloughed as part of the lockdown.

But this money doesn’t just grow on trees and the UK government is going to be left with a hefty bill once the dust settles.

In fact, a recent Treasury document published by the Telegraph estimates the coronavirus crisis is going to leave the Exchequer almost £300bn out of pocket this year.

The same document suggests one way for the UK government to balance the books is to get rid of the state pension triple lock, which currently guarantees that annual pensions rise in line with inflation, average earnings, or 2.5%, whichever is higher.

The Office for Budget Responsibility predicts that average earnings are set to soar around 18% when state pensions are calculated in April next year, because easing lockdown measures will see workers currently on furlough or having taken a pay cut resume full-paid work.

A pension increase of 18% would cost the government billions and also come at a time when tax revenues are notably lower, something which seems infeasible in the current economic climate.

The key risk for pensioners is that this may be more than a temporary suspension of the triple lock, given that when the earnings link was last broken by Margaret Thatcher in 1980, it was another 30 years before it was re-introduced.

Increased currency volatility

The coronavirus crisis has also led to heightened volatility in the currency market, a trend which looks set to persist for the foreseeable future due to the considerable uncertainty about what shape the recovery in global growth may take.

This of course could cause headaches for anyone seeking to retire aboard as it could cause the value of their pension to fluctuate wildly from one month to the next when it is transferred into the local currency.
For an example of the volatility we have seen so far this year you just need to look at the GBP/EUR exchange rate.

In February, before the coronavirus had made its way to Europe the GBP/EUR exchange rate was worth roughly €1.20, so a monthly pension of £2000 would be worth €2,400 once transferred across the Channel.

But just three months later in May, the GBP/EUR exchange rate had fallen to €1.11, valuing the same transfer at €2,220.

However, at Currencies Direct we can help you limit your exposure to such currency risks with services such as Forward Contracts which allow you to fix an exchange rate for up to a year, protecting a future transfer from any unfavourable shifts in the market.

On top of this, our award-winning fee-free transfers offer highly competitive rates and could save you even more money than transferring through a high street bank.

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Currencies Direct

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