All eyes have been firmly focused on the unfolding financial crisis involving the less-than-solvent Cypriot banks, and the ramifications for pensioners in this troubled region cannot be taken lightly. Indeed, many of those who had a pension investment plan in this country are now faced with some difficult choices. While it is no surprise the pensioners have been hit hard, it is important to understand why so many had flocked to Cyprus to begin with.
Cyprus - the last pension tax haven?
Simply stated, until recently Cyprus was one of the few tax havens left in Europe. Pensioners could enjoy paying only a 5% tax on their global income if kept under a certain threshold. If we compare this 5% tax rate to the 40% rate within the United Kingdom, it is easy to see why many pensioners moved their money abroad. Both Inheritance Tax and Wealth Tax did not exist in Cyprus. Additionally, should a foreigner claim a tax resident status, no deductions would be incurred on any Cypriot pension plans.
Does UK pensioners in Cyprus get any money left?
Now, this seemingly magical landscape has all but faded. Under the new bailout terms set forth by the ECB, any holdings of more than 100,000 euros will be charged with a flat one-time tax of up to 40%. Thus, many pensioners that hold such values may see their funds dwindle virtually overnight. What is also problematic is that such schemes rarely allowed for quick asset liquidation if the need arose, however this may be irrelevant if we consider that customers are allowed to withdraw a maximum of 300 euros a day in the near future.
Thus, these pension investment schemes may actually serve to greatly reduce overall holdings and it seems that as of yet, no outside protection is being offered. While it may be argued that this controversial bailout and the subsequent tax levies were required, many pensioners will soon feel the bite in this ongoing financial crisis.