The rising cost of retirement in the UK
The UK’s high inflation rate has forced expatriate investors to reconsider their retirement plans. The 40-year high inflation rate is affecting retirees, whilst the cost of day-to-day living has gone up almost 20% due to rising food and energy prices, according to the Pensions and Lifetime Savings Association (PLSA).
A single retiree now needs a minimum of £12,800 a year to get by, compared to the previous minimum of £10,900. For a couple, the minimum has increased from £16,700 to £19,900. To have a moderate lifestyle, a single person requires £23,300 and a couple £34,000. The cost of a comfortable lifestyle has also increased, reaching £37,300 for a single person and £54,500 for a couple.
The PLSA has praised the government for its promise of the triple lock state pension, which will allow most retirees to afford a basic lifestyle after a scheduled 10% increase in April. The new state pension will increase to £10,608 a year. The PLSA fears that retirees will need more financial help to have a sustainable retirement income and recommends that the government adopt clear national objectives for retirement income. They also suggest the government protect everyone from poverty and increase automatic enrolment pension contributions later this decade.
Inflation, Inflation, Inflation
Inflation is the main problem for retirement savers, as it has increased the target pot. The pot needed for a moderate retirement is now £350,000, while a comfortable retirement requires £750,000. Retirees who have already retired need to make savings or increase their withdrawals to cover the increased cost of living, which may put their ability to fund their entire retirement at risk. The cost of domestic fuel is the most significant factor affecting retirement savings, as the weekly cost of domestic fuel rose by 130% between 2021 and 2022.
Where does that leave us?
PLSA data shows that half of pension savers will not have saved enough for even a basic retirement budget. They are now calling for the government to increase contributions for savers outside automatic enrolment and reform the State Pension so that everyone receives the equivalent of the basic retirement living standard, eliminating pension poverty.
Only 8/10 savers are on track to meet the basic retirement living standard, but this drops to 1 in 3 for the moderate level and 1 in 12 for the comfortable level. The budgets don’t include rent or mortgage costs, as most retirees have already paid for their homes by the time they retire.
Expat Considerations
For Britons living overseas that either may or will retire back to the UK, this means the goalposts for retirement are moving just as much. Planning effectively for providing a retirement income is generally more complex for an expat since there is the added dimension of multiple currencies (assuming they are earning in non-GBP), multiple tax jurisdictions and multiple sets of laws.
Traditional typical inflation rates used to project retirement income requirements may no longer be accurate, making it all the more critical for expats to regularly review where they are vs where they need and want to be. Applications such as our Client Portal tool make this task more manageable to pull the current picture together. Then it requires intricate and detailed modelling to understand the journey and what needs to happen between now and when you want to retire.
If you want to sit down with one of our retirement planning specialists, a FREE discovery consultation is on offer to you – this will enable you (and our adviser) to understand your goals, your time horizon and your current situation. From here, we can help you dissect the reality of your current plan and ascertain whether any changes need to be made to your investment plans or, indeed, your retirement expectations.
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