Recent research has shown that British citizens aren’t saving enough for their retirement against rising utilities and consumer goods prices in the UK. But having endured over four years of austerity, many retirees will be frustrated by the fact that they cannot live their autumn years in financial security.
Is there an alternative to staying put in the UK? Many dream of retiring to an exotic locale – perhaps sunning on the terrace with a glass of wine in hand – but the perception is that only an affluent minority can actually hope to live it.
Now, with the rising cost of living in the UK causing financial and political anxiety, it may soon become the more financially prudent option to retire abroad.
The average UK pension currently stands at £15,800 ($26,498) per annum – roughly split 2:1 between private pension and the state pension. This is still around £3,000 less than in pre-crash years.
Furthermore, the collaborative efforts of the Post Office and the Centre for Economics and Business Research have recently suggested that, despite a growing sense of optimism that the economy has turned a corner, the potential saving power of UK households has fallen dramatically since 2010, and will continue to do so.
In 2010 spending power stood at £4,414, but this fell to £3,780 in 2013. It is expected to fall further in 2014 to £3,630, and then again in 2015 to £3,518. If this trend continues, by 2018 the pot will have reduced to £2,944, putting UK households at the same level as they were in the 1960s.
Henk Van Hulle, Head of Savings and Investments at the Post Office said:
“Even though the cost of living remains one of the biggest factors preventing people from saving more, it’s crucial that people understand the importance of saving. Whether it’s paying for a broken boiler to be fixed; a family holiday; or retirement.
“If the UK’s savings habits don’t improve, we’ll be left in a situation where far too many of us have inadequate savings pots, putting more financial stress on people in later life.”
If the saving crisis continues as predicted, will it be more beneficial for retirees to move abroad where their pensions and savings might stretch further?
Using data from the OECD we’ve put together an interactive graph that looks at some of the most popular retirement destinations in the world; how our British pensions stack up against the locals’; and the factors that will drain your pension pot.
While the most sensible option for anyone looking to retire abroad will always be to contact a trusted financial adviser, we created this map to give our users a snapshot of whether a move abroad will be viable, even for those with average pension pots.
Many people think this kind of lifestyle is out of their reach, when in reality there are many countries where modest pension pots can go further than one might imagine. Just looking at the data shows how ahead of the curve the UK is in regards to pensions. There are also a host of offshore pension schemes available to expats that can mitigate tax liability in the UK and stretch that pension pot even further.
Obviously, not all countries are going to be possible, but we hope the graph might help consumers see what kind of financial position they’d be in if they decided to retire abroad.
Let’s take a look at some of the most popular overseas destinations for British retirees.
It won’t shock many to learn that the average UK pensioner will not be retiring in Zurich, but what is surprising is that the traditional destinations for UK retirees, such as France and Spain, are beginning to price themselves out of the market for the average saver.
Lisa Sadleir, owner of blog Family Life in Spain, currently lives with her family in Andalucia:
“Admittedly, Spain is not as cheap as it used to be (for day to day material items and utilities). The expat generation who’ve lived in Spain for some years can often be heard complaining about the continued rise of living costs in Spain [but] the problem tends to be that they’re comparing the prices of Spain today with the prices they remember paying in UK some time back and have not kept up to date with the recent inflationary spate in UK.”
As a UK expat in the EU you’re still entitled to free medical treatment on the NHS, however, the rising cost of living in France and Spain make retiring in these countries at the top of the budget for the average pensioner. Recent news that some 90,000 Brits have left Spain in the past year certainly seem to lend credit to this assertion.
It appears that the further from the EU one travels the further their pension will stretch. Less UK expats are likely to consider Mexico or Thailand a more attractive option than Spain, although the data shows you could live much more comfortably in these less developed countries – in Thailand, CPI and healthcare costs are less than half what they are in France and Spain.
Of course it pays to research extensively though, as actual experiences often differ. Jan Anderson is a long-term Pattaya resident in Thailand, and says that, “it's possible to live happily on £15,800 if you keep within a fairly tight budget, but this would mean living outside the major urban zones such as Bangkok and Pattaya.”
Things like private health insurance may cost only $83 per capita, but there are often hidden surcharges for British expatriates. Jan says healthcare “could cost around £2,000 per annum, depending on your personal circumstances, e.g. age, lifestyle and general health. This would immediately reduce your pot to c. £13,800, i.e. £1,150 per month. From that you could deduct rent of, say, £250 for a modest dwelling which leaves you £900 for everything else.”
Popular destinations such as the USA and Australia still appear to be the reserve of wealthier pensioners. Although British average pension pots blows the average American’s out of the water and the CPI is a reasonable 77.39 (just a touch over Spain’s), sky-high private medical costs are likely to be a debilitating factor for the average UK pensioner. Australia meanwhile will exclude many lower earning pensioners due to its colossal CPI of 108.51.
It should also be noted that expats moving to Canada, Australia, the USA, and many other countries outside of the EU will not receive inflation-linked increases to their state pension each year. If you’re relying on your state pension for a third of your income (and plan on living for another few decades) this could severely limit your spending power, particularly in your later years.
Will the limited saving power of UK residents see an increase of expat retirees looking to make the most of their above-average pension pots? Also, will we see a shift in where UK citizens retire in the coming years? As retiring in Australia, USA, Spain and France becomes increasingly untenable for those with more modest pension pots, it may be that South America and East Asia soon become the go-to destination for sun seeking British pensioners.