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Consider a simple fact; overall, the cost of living has increased consistently over time. Try comparing the cost of buying a house or a car in the fifties, and now today, and you’ll find that the cost of living has gone up in real terms by many, many times.
What this means for Brits is that a pound these days buys you far less than it used to. Put another way, you’d need more money now than you would a few decades ago in order to enjoy the same quality of life. All pretty obvious stuff really (and not especially exciting, frankly) until you consider how this same phenomenon can impact pensions.
The problem, you see, is that if you start to claim a pension at the age of 60, and then live on long into old age, that same fixed amount of money each week will become worth progressively less and less. For those living into their nineties or beyond, the rising cost of living could well have depreciated the value of their pension, making it difficult to live on such a sum.
Oddly, though, this isn’t the same for everyone. Indeed, some UK pensioners benefit from what is known as the “triple lock” rule. This rule, set up by the British government, ensures that pensions actually rise on an annual basis, either in response to the consumer price index, average earnings or 2.5%. Expats whose pension is affected by any one of these three factors will generally see their pension payments increasing as the costs of living do so – making for a more comfortable long-term retirement.
The question is really how you become one of these beneficiaries, in order to ensure you’re not missing out on thousands of pounds each year which could rightfully be yours. And the answer? Well, it all depends on what country to retire to…
According to figures produced by the DWP in Britain, approximately half of all pensions for expats are “frozen” on account of these individuals living in a country where index-linked payments are not recognised. In cases where these payments are not reciprocal, pensioners simply have to rely on the same fixed sum of money each month.
Possibly even more worryingly, a number of the most popular retirement destinations for British expats are in the “no” camp – meaning that pensioners living in these countries will by default be missing out on potential income in their twilight years.
Among those countries not to recognise index-linked payments are Canada, New Zealand and South Africa. Worse, the number one retirement destination among Brits – Australia – also sits firmly in the “no” camp.
So what is to be done? Largely, this is a governmental matter that few of us as individuals can affect. That said, the only real protection one has is to ensure that you choose an indexed country as your retirement destination. There are, fortunately, plenty of options; among them the USA, Spain and France.
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Expatriate Group & Expatriate Healthcare are trading styles of Strategic Insurance Services Limited who is authorised and regulated by the Financial Conduct Authority (FCA). FCA Firm reference Number is 307133. Strategic Insurance Services Limited is authorised to carry on Regulated Activities in accordance with the permissions granted by the FCA under PART IV of the Financial Services and Markets ACT 2000.