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Your pension left onshore could affect your income and wealth in future years. Low interest rates are affecting your savings

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Your pension left onshore could affect your income and wealth in future years. Low interest rates are affecting your savings


Following our introduction to QROPS in the last edition, we started to cover how both British and European pension holders can now take control of their pensions, by moving them into a tax efficient offshore structure. We will now look at how leaving your pension onshore and out of your control could affect your income and wealth in future years, as well as how record low interest rates are affecting your savings.

Company pension deficits 13 times worse than a year ago

Latest official figures from the Pension Protection Fund show that deficits in British company final salary schemes have ballooned to an all-time high, on the back of the UK’s monetary policy. A staggering 86% of what is left of UK company schemes are currently in deficit, amounting to a record £312 billion. Pension experts are now warning that final salary schemes (or defined benefit) have come under immense pressure and thus provides yet more proof that the Bank of England quantitative easing programme, which so far printed £325 billion, was a disaster for pension funds.

Under the UK’s current monetary policy, the BoE creates new money to buy Government gilts, therefore
increasing its demand and pushes down its interest rates, in which retirement funds invest to earn capital. One expert explained that the current low yields have cancelled out 3 years’ worth of investment returns for many employers. Moreover, UK Chancellor George Osborne has announced that the Central Bank plans to unleash an additional aggressive monetary policy worth £100 billion. Policy maker Adam Posen had suggested that the BoE could continue buying assets in order to kick-start the faltering British economy.

Meanwhile, the Organisation for Economic Cooperation and Development said that British savers have
suffered worse losses from their work pensions than any other nation in the developed world. Furthermore,
its statistics show that male incomes are falling drastically, whilst women are being forced to live on an average of £12,250 a year. Notably, studies also show that more than half of the working age population in the UK are not contributing to any sort of pension arrangement.

Savers are losing £18bn a year on low interest rates

Record-low interest rates and persistently-high levels of inflation continue to diminish the value of savers’ money when kept in the bank. According to a research conducted by Hacker Young, UK savers are losing up to £18 billion a year, out of £115 billion deposited, which is a 16% loss per year.

The value of savings is declining as inflation, which is kept higher by the Bank of England through its
extended era of asset purchases (adding £50 billion on July 5th), continues to outpace near zero interest
rates on savings and current accounts. Essentially, this means that when savers put money in the bank, their money is losing value in real terms, as the cost of living outpaces wage increases, and in addition, they are getting no return for having money deposited in bank accounts.

Adding to the case of a low interest rate era, the European Central Bank announced last week that it is
diminishing its deposit rate to a record zero percent. Moreover, China cut its interest rate for the second consecutive time in a month to the lowest in 2 years, to a deposit rate of just 3%. Experts noted that the central banks’ efforts to boost spending could continue to trigger insufficient levels of inflation, which ultimately slowly erode away billions from the workers’ savings.

Nigel Green, CEO of the deVere Group added that, “As central banks keep doing all they can to maintain
low interest rates, savers are very much unlikely to see deposit rates raised any time soon. This has
disastrous effects for savers and pensioners in particular who have seen their income diminish by policies that tried to help banks at the expense of savers who put money aside for their future. Green also noted that the BOE’s experimental quantitative easing programme has clearly not boosted the UK economy, but rather boosted inflation and damaged pensions.

Contact your local deVere office to learn more about this and other financial issues

deVere Business Contact Details

Tel: (+66) 038 489 372 / 3 (Local Pattaya Office)

E-mail: [email protected] | [email protected]

Mobile: Greg Hirst 084 421 2331 | John Hayden 084 528 8617

For more information on the deVere Group, see our Inspire page here

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