UK expat retirees urged to consider all aspects of pension freedoms

Would-be expats considering taking advantage of the so-called’ pension freedoms’ are urged to evaluate their choices carefully.

A report by the Pension Institute think-tank should make interesting reading for Britons approaching retirement and considering emigrating to warmer climes with lower costs of living. The study scrutinised the business models of a number of pension providers before deciding retirement savers choices were being restricted by two recent developments.

Consolidation between pension product providers is now decreasing the number of financial companies in operation, giving retirement savers far less choice. In addition, the government’s decision to scrap the compulsory purchase of an annuity is expected to affect retirees whose personal circumstances indicate they may run out of money long before they die. The think-tank believes both actions will have a negative impact on the health of the retirement income market, with consumers losing out as a result.

Pension freedoms were introduced in 2015 as the answer to the restrictions posed by the compulsory purchasing of annuities by pension savers about to retire. The lure of being able to walk away with a working lifetime’s pension pot proved impossible to resist for a huge number of retirees, especially those wishing to retire overseas. Annuities fell out of favour, resulting in many insurers quitting the market entirely due to low sales figures and low rates of return. However, many retirees both at home and overseas are expected to outlive their pension pots and will need state help to survive.

The pensions industry now faces the challenges highlighted in the report. Government actions have led to conflicting policy signals, in that retirement saving via auto-enrolment is being encouraged on one hand, while the other hand is pushing the freedom to withdraw pension savings from the age of 55 years without a thought of securing a lifelong income. Fragmented regulation in the UK is another major problem undermining the common sense behind pension saving.

Giving increasing control over individual pension savings encourages individuals to select personal options, but subsequent governmental tinkering with allowances and reliefs takes personal control away. Finally, the report concludes automatic workplace enrolment is now not covering enough people, with the danger that the entire scheme could collapse should raising contribution levels cause a high number of defections.