Will the Western world’s retirement crisis result in expat poverty?

People are living longer and healthier than ever before and looking forward to an active retirement.

Across the entire swathe of Western first-world countries, demographics show that humans are living far longer and staying healthy well into their retirement years. Unfortunately, their pension savings investments were never designed to take this into account and the majority of state pensions are fixed too low to provide a safety net.

A recent article posted on an influential US business-focused website last week illustrates the issue by stating workers must save at least 20 per cent of their annual wage in order to fund their eventual retirement. Obviously, a huge number of workers can hardly manage to save at all due to high levels of inflation and soaring house prices, resulting in a current income-based pension discrepancy. Even more obviously, those who earn just enough to cover their living expenses month to month don’t expect a comfortable retirement, but middle wage earners are fast falling into the same trough.

In the USA, there’s no such thing as an age-related state pension as is common in Europe, but European old-age pensions are so mean as to make little difference to the overall picture. For example, one study revealed developed world workers expect pensions to total at least 63 per cent of wages, but the UK state pension covers just 38 per cent, the lowest in the whole of Europe. It’s not just UK pensioners who’re suffering, it’s also their counterparts in Spain, Belgium, Austria, France and Germany who’re having a hard time making ends meet, especially as demographics show retiree numbers are increasing whilst worker numbers paying into the social security fund are shrinking.

For Brits, the pension crisis can’t be solved by becoming an expat in one of the European countries popular with retirees, as the British exit from the EU means already low state pension payments from the UK are subject to currency fluctuations between the euro and sterling. The pound is expected to fall still further due to Brexit and it’s even possible the UK may slip into recession as a result, with British pensioners receiving even fewer euros to the pound than at present. Any capital received from selling a British home is likely to be swallowed up in purchasing another property in the preferred destination, as property prices in Europe are now nowhere as cheap as they were a decade ago.

Britons on private pensions may well be in a better place than those relying on state generosity, but should take care to prepare a budget and stick to it, no matter how tempting the ‘investment opportunities’ offered by IFAs working in favourite expat retirement locations seem to be. Expertise in the world of finance isn’t easy to come by, but it’s essential expat retirees understand exactly what’s on offer before they risk their add-on private pension by investing in a product they don’t understand or is totally unsuitable for their circumstances.

Returns are never guaranteed, no matter how many assurances are given, and many of the ‘household name’ insurance companies based offshore in the Isle of Man and the Channel Islands have deservedly poor reputations both for their customer service, high maintenance costs and lack of suitability of their products.