QROPS update 21th July 2011 Pension income drawdown & Foreign exchange QROPS and QNUPS

At Gerard Associates Ltd we continue our daily look at factors affecting markets and currencies allowing some insight into conditions affecting exchange rates.

Cash and income timing from a UK Pension income drawdown, flexible pensions or QROPS (Qualifying Recognised Overseas Pension Scheme) should be considered to maximise the Pension drawdown, QROPS and investment income taken.

Investment market volatility and currency exchange remains a challenge. The global economics are volatile and unprecedented in history. Currency exchange continues to concern expats with UK Pensions, income drawdown now including flexible pensions, a QROPS and QNUPS (Qualifying non UK Pension schemes).

The Pound began Wednesday in negative territory as traders awaited the release of the minutes from the Monetary Policy Committee’s meeting in July.  The information emerged at 9.30am and in the space of forty five minutes, Sterling had managed to claw back the majority of the ground that it had surrendered earlier in the day. 

The minutes read that the MPC voted seven to two in favour of holding rates at 0.5% for the second month in a row.  Spencer Dale and Martin Weale sided together again to raise rates to 0.75% and Adam Posen repeated his opinion from last month, to increase the Bank’s quantitative easing programme by £50bn to a total of £250bn.  The voting pattern came as no real surprise as the MPC has been split on monetary policy for some time.  The reasoning behind the majority feeling that there was no requirement for a near term tightening of policy was a result of recent soft data releases.  Once again the statement outlined that the economic policy continues to be caught between a rock and a hard place as the threat of a rise in consumer price inflation is expected to push above 5 % in the coming months.

“The most notable omission was the lack of any real mention of the governing council mulling further measures to support the economy through its soft patch, by printing more money to expand their asset purchases.  At present, the governing council seems unwilling to artificially support the economy further,” remarked a researcher at DailyFX.

The market expects any rises in interest rates to occur at the end of this year (at the earliest) with the majority consensus being with further into 2012.  Howard Archer, chief European and UK economist at HIS Global Insight, said:

“On balance, the minutes reinforce our view that the Bank of England will hold off from raising rates until the second quarter of 2012 and will only re-engage in quantitative easing if the economy sees sustained very weak activity.”

In Europe, all eyes are now on Thursdays’ summit in Brussels.  However, as usual the members do not appear to be singing off the same song sheet.  European Commission President, Jose Manuel Barroso stated that the minimum the summit must achieve is to provide clarity on measures to ensure the sustainability of Greek public finances.  Chancellor Merkel is of the opinion that private investors should contribute to any aid package by agreeing to roll over loans they have made to Greece.  The European Central Bank disagrees, arguing that such a rollover would constitute a default in the eyes of the international credit ratings agencies and a knock on effect would undermine investor confidence and the Euro itself.  The EU and the IMF have been discussing a second aid package for Greece, expected to be a similar amount to the €110bn package agreed last May.

Over in the States, the Greenback’s cause was not helped by a worse than expected Existing Home Sales data.  Traders are looking to a positive number from tomorrow’s Philadelphia Fed Manufacturing Survey to see some much needed support for the US Dollar.

IN THE UK

• BoE votes 7-2 to keep interest rates on hold at 0.5% with Adam Polsen voting for further quantitative easing to be added totaling £250bn.
• Sterling edges higher as speculative short positions are trimmed.
• No explicit mention of further mulling of QE in Bank of England’s minutes apart from Adam Polsen’s vote.
• Minutes outline the likelihood of inflation pushing over the 5% in the near future and solidifies the expectation of Interest rate not be raised until 2012.

ELSEWHERE

• Negative Existing Home Sales data adds to the USD retreat against GBP allowing Sterling to hold above the key $1.61 level.
• European Consumer Confidence figures are less than expected, yet Euro holds firm vs. Sterling.
• French Finance Minister stresses the need for Europe to send a strong message on Greek debt.
• Chancellor Merkel calls for private investors to agree to rolling over loans that they have made to Greece.

DATA TO LOOK OUT FOR

• ECB Summit held in Brussels today, each member has different views of discussion points and outcomes.
• Positive UK Retail Sales data (excluding fuel) Year on year may provide support for the Pound.
• The Philadelphia Fed Manufacturing Survey (Jul) is expected to be positive & could strengthen the USD.
• Purchasing Manager Index Services data from Europe is not expected to help the single currency as a retraction from last month is expected.

Gerard Associates Ltd advises UK residents, expats and people considering living abroad on the technical and currency options available for Pensions, pension income drawdown, flexible pensions, QROPS, QNUPS and investments in a clear format allowing all customers to make an informed choice. Our service encompasses Pension including QROPS and QNUPS and investments in a clear format allowing all customers to make an informed choice.

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