Place in the sun: Picking the wrong retirement destination could cost you £50,000
Treasury saves £3bn by refusing to extend pension triple lock to overseas retirees
Retiring to a vitamin D-filled life of relaxation is the ultimate goal for hundreds of thousands of taxpayers.
But the latest government figures show more than half a million people will not receive the state pension they paid for because of where they live.
The number of Britons retiring abroad increased 26 per cent over the past decade. In order to save the Treasury an estimated £3bn over five years, expatriates in countries including Australia, Canada, New Zealand and South Africa will miss out on as much as £50,000 over the course of their retirement because they are exempt from “triple lock” state pension protection.
This is the controversial mechanism which guarantees pensioners receive a state pension which increases in line with the highest measure between average UK earnings, consumer price index (CPI) inflation or 2.5 per cent.
“At the end of last year there were renewed campaigns for the government to end a policy that means half a million expats get thousands less per year in state pension payments because of where they live,” says Jon Greer, head of retirement policy for wealth management firm Quilter.
“The update is a useful exercise as there had been disagreements over how much such a policy change will cost. Changing the 70-year-old rules on expat pensions could be seen as an opportunity to win favour with parts of the public, but with the state pension already eating away at an astronomical amount of the budget, it might be hard one for the chancellor to stomach.”
“For many this might be the difference between living comfortably and struggling to make ends meet,” says AJ Bell’s Tom Selby of the figures by the Department for Work and Pensions (DWP) last week.
“Unfortunately for those affected there is no sign of a reprieve, with successive governments rejecting calls to rethink the policy and preferring instead to focus resources on those who choose to remain in the UK.”
The government has confirmed that British retirees living in EU countries will continue to receive a triple-lock state pension, which is good news for the 469,000 people currently living in EU member states.
Research from investment platform easyMoney suggests the numbers are up from around 371,000 in 2008.
The biggest increase in UK pensioners was in France – where the number of British pensioners has increased 49 per cent to 66,970, up from 44,860 in the last decade.
The biggest overall increase was in Slovakia where UK expat pensioners increased by 1,500 per cent in Slovakia in 10 years to 490.
But with a no-deal Brexit still looming, Britons living in these countries could quickly find themselves facing the same huge financial hole as those living further afield.
“At the moment UK citizens retiring to countries like Spain and France benefit from state pension increases through a reciprocal deal with the EU as a whole,” adds Selby.
“If the UK leaves the EU without a deal the government has only committed to uprating state pensions for people living in EU member states in 2019-20. Beyond this point these increases will depend on a reciprocal deal being struck, either with the EU or individual member states.”
Despite the long-term increase in the number of pensioners living in the EU, the number has fallen by 6,110 over the last year alone to 468,790, from 474,900 in 2016-17, driven primarily by citizenship and residency fears after the Brexit transition period, or in a no-deal scenario.
If approved, the withdrawal agreement between the UK and the EU allows British citizens in the EU 27 to retain their legal residency and social security rights but only until December 2020.
Currency fluctuations also make buying a home and the cost of living difficult to manage for those resident abroad on fixed incomes paid in sterling.
Andrew de Candole, chief executive of easyMoney, says: “Despite the Brexit vote, thousands of pensioners have retired to the sun in recent years.
“A sizeable private pension is the key to retiring abroad but low-interest savings accounts and cash ISAs will not get people to the beach for their golden years.
“Many savers are increasingly willing to take on a calculated risk for better returns in order to build up the pension pot that is required to fund a dream retirement.”
With the very best east-access ISAs offering 1.45 per cent – significantly less than inflation – he suggests savers look into their Innovative Finance ISA (Ifisa) which offers an interest rate of up to 7.28 per cent on investments of £10,000 or more.