QE and tax policies on pensions driving pensioners overseas

24th February 2013

A growing number of pensioners and those coming up to retirement are moving their pension funds out of the UK because of Government tax policies and the Bank of England’s quantitative easing programme, a global financial advisory business is claiming.

The deVere Group says it transferred 35 per cent more UK pensions into HMRC-recognised Qualifying Recognised Overseas Pension Schemes (QROPS) during 2012, compared to the year before.

Chief executive Nigel Green says:  “More and more Britons who can move their pensions into a QROPS – generally those with a British pension and who have left the UK or are planning to – are doing so.  Our QROPS business is up more than a third over a 12 month period.

“We attribute this significant increase to the mounting public perception that the Government, which people believe is constantly changing the rules on pensions, cannot be trusted with them.

“As such, increasingly our British expat – or soon-to-be expat – clients tell us that they want to move the money that they have prudently put aside for their retirement out of the UK in order to safeguard it from the Government which is quietly and not-so-quietly plundering pension pots in the form of scrapping age-related benefits, and with the plans to cut pension tax-breaks and the tax-free allowance, amongst other things.”

Green adds that things would not be much different were the Labour opposition on power.

He adds: “The public is ever more aware that even if there were a change of government, pension raids would continue, with the opposition recently setting out its plans for a £1bn tax grab on pension contributions.”

He adds: “Another major factor in the rising popularity of QROPS is the Bank of England’s Quantitative Easing (QE) programme which has permanently damaged the retirement income for millions of pensioners by helping to push annuities, which give retirees an income for life, to record lows.  A QROPS does not force you to buy an annuity.

“With it being revealed this week that Sir Mervyn King, the outgoing governor of the BoE, is in favour of extending QE, it is likely that we will see a further jump in the numbers of people considering moving their retirement funds out of the UK.

“In addition, as the pound looks increasingly weak – it’s at its lowest against the dollar since last summer and at its lowest against the euro for more than 12 months – QROPS are likely to be seen as an increasingly attractive prospect because they can pay out in a currency other than sterling.”

36 thoughts on “QE and tax policies on pensions driving pensioners overseas”

  1. Anonymous says:

    A single, average income family cannot afford even a modest house in my part of the SouthEast. Basic house circa 250,000. Mortgage on average salary circa 28,000 is £140,000. Looks very unaffordable using basic math.

    It also seems a dumb argument to claim affordability on a 0.5% base rate, as borrowers on an average salary will pay much more even if they find a 10% deposit + lots more for lawyers, statutory fees and taxes.

    More importantly, the base rate is driven by the money markets – so there is no guarantee of it remaining low over a 20 or 25 year mortgage. Historically, QE & negative interest rates cause inflation and inevitable interest rate rises. 25 year fixed mortgages are not available – so house buyers cannot safely assume that benign base rates will continue through their mortgage’s lifetime.

    In the 1980’s we saw rates above 10%, if repeated would cause huge problems. As Shaun has previously recommended, BOE base rates should be gradually increased sooner rather than later. The RBNZ has recently raised rates. We will see which economy fares better in the longer term.

    1. Anonymous says:

      Remember that it’s not a single income that is considered these days. Average household income is around the £40k mark, and probably much higher in the SE, say mid-£50’s or above. So it takes two to service a house purchase in the SE. In my experience, that is nothing new. We needed two incomes in the early 70’s.

      1. Anonymous says:

        So it takes 2 average salaries to buy a very basic 3 bed house.Averages are misleading because high salaries distort the numbers. So in effect we are saying that a working couple with below average wages cannot buy a house.
        Just because the same affordability problem also existed in the 1970s, does not make it acceptable now.

        1. forbin says:

          +10

          house prices on any index are way way too high

          Forbin

      2. Anonymous says:

        Surly far more women work now than in the 1970s? What’s happening is all productivity gains and increased working hours are being soaked up by house prices which goes straight to the banks / wrinklies.

    2. Anonymous says:

      Thank you for mentioning that the RBNZ had raised its rates. I verified that the RBNZ raised its official cash rate (OCR) from 2.5% to 2.75% on March 14. Unlike the BoE, the RBNZ does not have a target rate for inflation, but implicitly, since it has a 1% to 3% target range, it also has a 2% target rate. The RBNZ raised the OCR even though the CPI inflation rate for 2013Q4 was only 1.6%. They were obviously worried about the trend rather than the level, as inflation was up from 1.4% in 2013Q2 and 0.7% in 2013Q2. Also, this was largely due to the strong housing market, with the New Zealand housing price index going up by 7.7% in 2013Q2, 9.0% in 2013Q3, and 9.7% in 2013Q4. If the UK CPI, like the New Zealand CPI, included an owner-occupied housing component based on the net acquisitions approach, there might not have been a decrease in CPI inflation in December, as the HPI went from 5.4% to 5.5% Beyond any question, the CPI would be showing inflation rates superior to 2% in both December and January. And beyond any question, the UK economy, like the New Zealand economy is facing accelerating housing prices. The HPI increase was 3.8% in September, 3.0% in June and 2.7% in March. Andrew Baldwin

      1. Eric says:

        The problem for NZ housing market is Auckland. Like London it goes from strength to strength while in many remote parts of the country prices have hardly moved in five years. When almost a quarter of the population live in one sprawling city it’s difficult to find a national balance.

        1. Anonymous says:

          Thank you, Eric. I didn’t know that. But since a central bank can’t pursue regional monetary policies don’t you think that the RBNZ is justified in raising the OCR, even if it is largely in response to changes in Auckland housing prices?

      2. Anonymous says:

        Thanks for the technical analysis and I’m pleased to read that NZ can create inflation statistics fit for purpose. Auckland suffers urban sprawl on a narrow isthmus with large harbours on
        either coast – restricting supply and putting upward pressure on
        prices. The NZ authorities appear to be taking other sensible steps to cool their housing boom with restrictions on high LTV (above 80%) loans. NZHerald reports suggest that further rate rises should be expected.

        1. Anonymous says:

          Hi Guys

          The statement from the RBNZ was interesting in several respects. As you can see from the quote below its “forward guidance” is that it expects to raise interest-rates again.

          “While headline inflation has been moderate, inflationary pressures are increasing and are expected to continue doing so over the next two years. In this environment it is important that inflation expectations remain contained. To
          achieve this it is necessary to raise interest rates towards a level at which they are no longer adding to demand. The Bank is commencing this adjustment today. The speed and extent to which the OCR will be raised will depend on
          economic data and our continuing assessment of emerging inflationary pressures.”

          Also it did explicitly mention the housing market in NZ and there are parallels here with the UK.

          “A rapid increase in net immigration over the past 18 months has also boosted housing and consumer demand.”

          Also a bearish view on the Kiwi dollar which is intriguing..

          “The Bank does not believe the current level of the exchange rate is sustainable in the long run.”

          1. Eric says:

            Hi Shaun,

            From NewsTalk ZB in NZ –
            “Home ownership in New Zealand is continuing to fall.

            New Census figures show in 2013, 49.8 percent of people aged 15 years and over owned or partly owned the home they lived in.

            That’s compared with 53.2 percent in 2006.

            Census general manager Gareth Meech says the decline in home ownership occurred across all age groups with the largest fall for people in their 30s and 40s.In 2013, 43 percent of people aged 30 to 39 owned their home, down from nearly 55 percent in 2001.”

            There must be a reason! Eric (in NZ again!)

          2. Anonymous says:

            NZD’s sustainable rate is based against exports. Agricultural exports suffer from US, Japanese & EU protectionism, farm subsidies & exemptions within “free trade” treaties. “free trade” might be added to your lexicon.

      3. Anonymous says:

        I’d disagree that NZ has a implicit 2% target. By nature, inflation statistics are approximate – different people purchase different items so see varying results. Measured inflation is always behind the curve, as the statistics are for a previous month or interval. So it’s more honest to allow the CB flexibility within a 2% band. They are either within band or not.

        The RBNZ are doing a decent job, where the BOE’s performance can politely be called dismal – unpeturbed while 2 and a half times over target and a using housing cost methodology that isn’t fit for purpose.

        1. Anonymous says:

          Point well taken, ExpatInBG. I suppose it is fair to say that if the RBNZ has operated without a target inflation rate for a quarter of a century, it is because they don’t feel the need for one. However, if you look at the most recent Policy Targets Agreement, it does say: “For the purpose of this agreement, the policy target shall be to keep future CPI inflation outcomes between 1 per cent and 3 per cent on average over the medium term, WITH A FOCUS ON KEEPING FUTURE AVERAGE INFLATION NEAR THE 2 PER CENT TARGET MIDPOINT.” (My emphasis.)

          I absolutely agree with you that the UK CPI’s housing cost methodology, basically looking only at repairs costs that a homeowner might make if they were the tenant, rather than the owner of their home, is unfit for purpose, while the net acquisitions approach used in the New Zealand CPI is. The pity of it is that the UK was one of the original five EU countries calculating pilot OOH series based on net acquisitions for Eurostat starting in 2000. If the Treasury Department and the BoE had actively pursued the matter in co-operation with the ONS, they probably could have implemented a CPI that included such an OOH component in December 2003 when the CPI replaced the RPIX as the Bank of England’s target inflation indicator. Andrew Baldwin

  2. William says:

    Hi Shaun,
    Why are UK taxpayers backing house prices rising much faster than wages?
    Because there’s no political opposition to it so we’ve got no choice!

    The fact that all the parties will nod this through means that, as we are all collectively on the hook for any losses, no-one will be representing the many who fund this scheme yet will be left permanently behind by the rocketing prices.
    Also any tough questions on the impact will only be voiced by interested people on the side-lines instead of in parliament so will be ignored.
    Strange kind of democracy.

    How long is a normal economic cycle? By extending Help-To-Buy out as far as 2020 – so far – Osborne is presumably banking on us being around and picking up the tab in a future recession in 5/6 years or so.

    Finally, Osborne has deflected any responsibility for creating a house price bubble onto the BoE, but if you listen to what Carney has been saying recently it isn’t as straightforward as that.
    Carney has said that he is only concerned with a housing bubble in as much as it would threaten the banks, so as long as the funding model is solid he’s ok with it, no bubble.
    This means that if houses in London for example become so expensive that they are unaffordable for single families to live in but are still viable as BTLs split into single room bed-sits with a family in each room, Carney will be happy with that and won’t call it a bubble.
    We can’t be far from that situation already, where we’ll be by 2020 almost doesn’t bear thinking about.

    1. Anonymous says:

      Hi William

      You pose 2 fundamental questions here and as we ask what type of democracy this is we also have to ask how much it is beginning to resemble a type of oligarchy. As to the economic cycle I do not think we are in for the NICE type of decade that Mervyn King described some years back as I think that things have sped up and right now is something of an eye in the storm.

      1. therrawbuzzin says:

        It’s not a democracy at all, it’s electoral dictatorship; multiple parties, but all sharing one basic set of policies, with the differences both peripheral and trivial.
        No qualitative choice for the electorate.
        Pete Townsend’s, “Meet the new boss…” to a tee.

  3. Anonymous says:

    This is wholly to do with the upcoming election. Further subversion of the tax system to guarantee mortgages for overpriced properties to those who can’t afford them, with the obvious characteristic that banks won’t fall into that hole again, at least for the moment… Taxpayers: line up here to sign for these guarantees. What’s that, you don’t want to guarantee the loans of impecunious unreliable housebuyers? I wonder why that might be!

    1. Anonymous says:

      Hi Barncactus

      I suspect the Whole of Government Accounts (WGA) will give it a go. But as we only have them up to 2011/12 then the actors on the stage will have exited stage left before they catch with them. Also they do not get much media exposure.

      The difference between its national debt and the ONS version was £341 billion…..

  4. Anonymous says:

    Shaun,

    Future Housing Industry – the only game in town -all that stamp duty plus add on services, lawyers, estate agents, surveyors plus bank’s fees !

    Mansion tax – anyone brave enough? Difficult to move houses offshore! – although complex company ownership sure to be tried !

    1. Midge says:

      Yes Chris and everyone who owns a house could be liable for IHT.

  5. Anonymous says:

    Great column, Shaun. It seems that ONS recommends the 6.3% share you mention be multiplied by the construction growth rate to calculate construction,s contribution to GDP growth. So no-one knows how much the UK economy grew from January 2013 to January 2014, but one can say with certainty that with its 5.4% growth rate the construction industry contributed 0.34% to it! Andrew Baldwin

    1. Anonymous says:

      Hi Andrew

      After the economic version of a nuclear winter the construction sector went through it is nice to see some spring in it. The catch is the way it is been driven. As to monthly GDP figures it is trade and services ones which would fall down the most I think.

  6. Just a thought says:

    Hi Shaun,

    I really don’t get it or what this fuss is all about? By the own admission of the BoE, it is expected another financial collapse thus pushing as much as she can for an agreement between the International Association of derivatives and swaps (ISDA) and international banks to suspend the default clauses on certain credit derivatives, including CDS, for a period of crisis.

    Objective: To avoid a domino contagion to the entire sector. “The entry of a bank in the resolution regime should not in itself be considered an event of default which allows counterparties to launch clauses accelerated contracts
    and trigger cross default” has said Andrew Gracie, executive director of the organization dedicated to banking resolution within the Bank of England in an interview with Bloomberg on the 05/03/2014.

    1. Rods says:

      The more interconnected any distributed system becomes, the more potentially unstable it is, due to a failure in one part affecting and even crashing part of or even the whole system. This applies to any system including financial systems. This is is due to a ripple effect of the failure of one part of the system bringing down other parts or the rest of it, so the more debt default risks are spread throughout the financial system with CDS’s derivatives, insurance etc, the more interconnected it becomes and the greater the likelihood of contagion.

      Examples of this are gridlocked roads in an area due to a closed major road, electricity grid blackouts (remember when most of the east coast of the US was blacked out) and of course financial systems.

      I expect the next major financial crash to be worse than the last one where the global financial system is becoming even more interconnected than it was in 2007! It looks like other people are thinking on the same lines.

      1. dutch says:

        and even more in lerveraged…..

  7. Matt says:

    The level of manipulation and outright lies from our leaders is disgusting.

    Shackling the young with little hope of ever obtaining a job that would provide an income to buy a first home without government support and guarantees (and massively higher interest burden on the higher debt).

    Shrinkflation alert: Laughing Cow cheese dippers previously 5 for £1.56 now 4 for £1.44, I like the way they were introduced as a *new* product on offer at £1 for the first week. Other items easy peeler clementines previously £1 per bag now £1.25.

    Deflation alert: UHT milk in ASDA has actually reduced from 53p per litre to 49p. Unfortunately my 12p saving didn’t offset the cheese dippers!

    1. Anonymous says:

      The probably make laughing cow cheese from uht – it’s blatant profiteering!

    2. Anonymous says:

      Hi Matt

      You have reminded me that the price of milk has indeed fallen and at Tesco’s yesterday it was £1 for four pints of skimmed milk. I will check the cheese!

  8. dutch says:

    Average working age household income has dropped from £38,000 in 2008 to £33,000 in 2013 accroding to the ONS.

    1. Anonymous says:

      Hi Dutch

      That is intriguing,do you have a link to that please?

      1. dutch says:

        http://www.ons.gov.uk/ons/dcp171776_341133.pdf

        Key findings
        • Since the start of the economic downturn, median household income for the overall population
        has fallen by 3.8%, after adjusting for inflation.
        • However, when looking separately at non-retired and retired households, the median income for
        non-retired households fell by 6.4% between 2007/08 and 2011/12, while the median income for
        retired households grew by 5.1%.
        • Between 2007/08 and 2011/12, average income from employment and investments for the
        middle fifth of non-retired households fell from £37,900 to £32,600.
        • Cash benefits for the middle fifth of non-retired households rose from £3,100 to £4,600 between
        2007/08 and 2011/12. As a result, the average proportion of gross income coming from cash
        benefits increased from 7.6% to 12.3% for this group.
        • Average direct taxes paid by the middle fifth of non-retired households have fallen from £8,700 in
        2007/08 to £6,800 in 2011/12. As a percentage of gross income, this is equivalent to a fall from
        21.1% to 18.3%.
        • The average amount paid in indirect taxes by the middle fifth of non-retired households also
        fell between 2007/08 and 2011/12, from £6,400 to £6,000, partly reflecting falling average
        expenditure. However, as a proportion of gross income, indirect taxes rose from 15.6% to 16.2%
        over this period, due to gross income falling at a faster rate.

        1. dutch says:

          apologies Shaun,my memory was slightly out.It was £37,900 to £32,600.

          Makes a mockery of HPI outside the SE.

  9. oblomovIII says:

    Good news for Execs of Building Cos – must be bonus time. Didn’t they donate a load to the Tories? They don’t even have to build the bloody houses for the share price levitator to kick in. That’s smart business that is.

  10. forbin says:

    ah I think I get it now

    FFL is modern Feudalism

    the land is granted by the “king” HMG to the peasants , well so far a part of it

    why not the whole lot ?

    Dune rears its head again ….

    Forbin

  11. Anonymous says:

    Hi Forbin

    The Dune saga has many themes which seem prescient now. The whole concept of staging the future with much of the values of the middle ages.

    As for us we could do with some Atriedes honour from our politicians and instead we regularly get behaviour more like the Harkonnens.

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