Cuts, cuts, cuts….the UK budget and pensions are back in the spotlight. This week’s UK budget and pensions legislation delivered a combination of punches that put pensions on the ropes. There were also uppercuts in the form of a levy on foreign companies used to purchase UK residential properties worth more than £2m, and body punches with the introduction of general-anti-avoidance rules scheduled to take effect in 2013. However, for the British expat standing in the neutral corner, developments further afield are of greater importance to their retirement planning.
In recent years, the value of pension funds and savings of investors have taken a dive as major economies try to reduce their debt against the backdrop of a low growth environment. The UK Chancellor in his budget speech tried to reassure the people that their pensions would be safeguarded. As we all know, nothing is safe in this environment. And yet, the answer to the pension conundrum cannot be found by sheltering in term-deposit accounts; there is indeed a cost to both individuals and society when we sit on cash in the bank. The solution to the current problem lies in a commitment to long term investment by individuals, institutions and governments alike. Moreover, the way forward for expats is to budget for their own pensions by taking advantage of opportunities as they present themselves in the market.
The UK budget and pensions – Terms of engagement
- Below the belt hits – the prospect of low interest rates of between 0.5 – 1% on deposit accounts until 2014
- The sucker punch – an inflation rate of 2.7% across the EU block is eating into any return on savings
- In a clinch – the ongoing defensive policy of quantitative easing or ‘printing of money’ by the EU, UK and US central banks has resulted in depreciating currency values
- Pulling punches – corporate earnings are generally in a healthy state, with companies waiting for the right time to pounce
- Saved by the bell – stock markets have rung up returns of circa 10% since the start of the year
Taking the gloves off
When we look at the scorecard of our pension funds to date, it becomes apparent that there are no quick fixes or overnight returns to be had. Financial advisors help investors structure pension plans that fit their personal risk profile and view of the world; what works for one person may not be ideal for another. To this end it is important to have a diversified portfolio in order to reduce risk. Ultimately however the aim is to find ways to generate better returns than those available for cash deposits or government bonds; to achieve this investors must be prepared to go the distance with their retirement plans!