Pensions And The Cyprus Financial Crisis

The economic woes in the Eurozone took another turn for the worse recently when the small Mediterranean island of Cyprus was the latest to appeal for a rescue package from the European Union. Cyprus’s problems stemmed mainly from the fact that this small island, with a population of just over a million was punching well above its weight in terms of its banking sector. When a couple of the country’s largest banks ran into difficulties with bad debt, it looked very much as if they could bring the whole economy down with them. A tense fortnight ensued, but the much feared run on the banks failed to materialise. Apart from wealthy Cypriots who have lost a large percentage of their savings, one of the other groups which has been hardest hit are the many thousands of British pensioners who have retired to Cyprus for a peaceful life in the sunshine.

Government and Savings

Immediately after the situation in Cyprus began to deteriorate, the government stated that they would move to protect the savings of any British forces personnel serving in Cyprus. No such guarantee was made to British expats who have moved to Cyprus on a permanent basis, even if they maintain ties with the UK such as property, bank accounts and other investments. After much wrangling, the government of Cyprus managed to negotiate an increase in the total savings required before a bail out tax would be paid and this lifted many British pensioners out of having to pay. The only positive out of the whole scenario is that any money taken by the government will entitle the saver to an equivalent amount in bank shares, which may recoup their value at some point in the future.

International Transfers

While the banking crisis was at its peak, the government took the decision to suspend all payments into Cypriot bank accounts for pensions, Child Benefit and other payments. This was done to protect the recipients of these payments from being hit with the potential bank levy, but has caused considerable hardship for many hundreds of expat pensioners. Pensioners could opt to have their payments made directly into a UK bank account, but this did not solve the problem of not being able to transfer their cash from the UK to a local bank and access the money through a cash point. With many retailers refusing to accept cheques and credit cards, the pensioners were well and truly stuck. There seemed no way out of their predicament and many felt that the height of the crisis was not the time for a pension review and rearranging their current financial set-up.

Future

Although the situation in Cyprus has affected a relatively small number of British expat pensioners, there is no guarantee that this sort of problem cannot arise again. Economies such as Portugal and Spain have struggled in recent years too and both countries are home to far more British expats than Cyprus. The canny pensioner living out of the UK would be wise to seek a pension review sooner rather than later and consider how their finances would bear up in a worst case scenario of having payments suspended. Opening a British bank account as a back-up, or having a local currency account with a British, German or US bank overseas may also help shield their income from problems should the economy turn sour. Currency fluctuations can also greatly affect the amount any pensioner receives in local currency and as part of any pension review decisions should be made whether the money would be best kept in sterling and invested in the UK rather than to be used for day to day living expenses overseas.

Kay Brown is a writer who has a keen interest in current financial news. She recommends carrying out regular pension reviews and other precautionary measures, especially if you live abroad, to ensure that your savings are protected from events such as the Cyprus package appeal.