NOT FOR much longer. A man protests against Brexit in London..
(photo credit: REUTERS)
Those who have made aliyah from the UK have experienced first-hand the effect of the sterling’s decline over the past decade. From a peak of 8.7 shekels to the pound in the summer of 2007, the rate fell by almost half to its low point in the winter of 2016, and has recovered only slightly to trade at 4.8 this February.
While the Brexit vote has undoubtedly been a factor in this development, the fall in the pound predates the 2016 referendum and is more a factor of the global financial crisis and the remarkable strength of the Israeli economy since then. Though this latter point is a source of pride for all Zionists, it creates significant challenges for those who moved to Israel or those thinking of aliyah. A disruptive Brexit or a hard-left new government could cause a collapse in the pound, which would have a significant impact on pension values.
Trying to match your income with your liabilities is a key principle of financial planning. That’s usually a straightforward issue if you retire in the same country in which you’ve worked. But if your pensions are in sterling and you are spending in shekels, how can you deal with this dilemma?
For retirees who are already drawing their British pensions – from the state, company schemes, or annuities from personal plans – the options are limited, as these incomes are fixed in pounds and can only be converted into shekels as they are received. The best strategy is to ensure that as much of your other assets as possible are invested in US dollars (which is much more closely linked to Israel’s currency) or in shekel assets. This way you can reduce the impact of any future sterling weakness in the event of Brexit turmoil or a change in government.
However, there are considerable opportunities available for investors who have not yet drawn their benefits or who are receiving a pension from an income-drawdown arrangement. It can be straightforward to rearrange your pensions so that the investments are either in US dollars, shekels or a combination of the two. This can be achieved while retaining your pension in the UK with all the regulatory and consumer safeguards that its pension system affords.
As an alternative, it may be possible to move your pension outside the UK, utilizing a solution known as QROPS. A QROPS must adhere to UK pension rules for the UK tax authorities to permit a transfer into it. This scheme also offers other benefits which are suitable for certain investors.
With Britain currently convulsed by Brexit uncertainty and the possibility of it shifting radically to the Left if there is a change of government, it is vital that British olim and would-be olim urgently review their retirement plans.The writer is a senior wealth manager at Pioneer Wealth Management and a qualified financial planner in the UK. Contact him at: firstname.lastname@example.org.
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