Retiring abroad cost British pensioners £10.6 billion

Older couple in Germany


Millions of us dream about spending our golden years somewhere warmer, more comfortable and less stressful than the UK. However, as a new report warns, the economic crisis means that retiring to the sun has become decidedly more expensive, and less comfortable over the last five years. In fact, the average pensioner has found themselves €145.20 a month worse off over that time.

So what has gone wrong, and what can people do to protect their income?
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Dropping

A report from HiFX found that the UK's 1 million pensioners who have retired overseas have missed out on a combined total of £10.6 billion.

This is due purely to the exchange rate, as the value of the pound has dropped significantly against a number of major currencies. British pensioners living overseas have their state pension paid in sterling and have to convert it each month. As a result, their monthly income has been gradually dwindling.

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Retiring abroad cost British pensioners £10.6 billion
The British pound has strengthened against the Japanese Yen by 14.8% compared to 12 months ago.
The pound is stronger than the Argentinian Peso by 11.7% compared to 12 months ago.
The British pound has strengthened against the South African Rand by 11.5% compared to 12 months ago.
The pound is stronger than the Jamaican Dollar by 8.9% compared to 12 months ago.
The British pound has strengthened against the Egyptian Pound by 8.6% compared to 12 months ago.
The pound is stronger than the Gambian Dalasi by 8.1% compared to 12 months ago.
The pound is stronger than the Brazilian Real by 3.3% than it was 12 months ago.
The British pound has strengthened against the Mauritius Rupee by 2.3% compared to 12 months ago.
The pound is stronger than the Russian Ruble by 1.7% than it was 12 months ago.
The British pound has strengthened against the Indonesian Rupiah by 1.4% compared to 12 months ago.
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Worst

The currency firm analysed the top 13 countries where British expat pensioners live. They found that an expat pensioner living in the Eurozone could have seen their monthly pension income drop €145.20.

Pensioners in Europe are suffering most: they currently get €1.16 against the pound, falling from €1.49 in January 2007. Meanwhile, those in Switzerland have taken one of the biggest hits, going from 2.43 Francs against the pound to 1.41 Francs.

Mark Bodega, Director at currency specialists HiFX, said: "For those in Europe, the days of €1.3 - €1.5 against sterling are now over, €1.2 against sterling would now be seen as high. However, pensioners in Switzerland have not only taken the biggest hit in terms of their state income, Switzerland is also notoriously expensive and has high living costs, so pensioners hit will have been struck from both sides."

Other countries where pensioners are taking a big hit are Australia, where the monthly income has fallen 444.4 Australian Dollars, and New Zealand where it has dropped 431.2 New Zealand Dollars.

So what can they do?

There's nothing pensioners can do to halt the slide. However, they can fix their exchange rate for between six months and a year. Many currency companies offer what they call regular payment services. They fix the exchange rate - this may well not be as generous as the current rate but will eliminate the risk of it dropping further. They will then take your state pension out of your UK bank account by direct debit, convert it and transfer it to your account overseas.

Those who are uneasy about fixing the exchange rate for up to 12 months and are more hopeful about sterling's future should at the very least shop around for better exchange rates and compare the rates offered by their high street bank with a currency specialist. Often the rates available online compete keenly with those offered by the major banks, so it's worth checking out what's on offer.

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Retiring abroad cost British pensioners £10.6 billion

If, like many Britons, you have failed to save the cash you need to maintain a comfortable standard of living in retirement, one option is to sell your home and downsize to a smaller property, using the money leftover to cover your living costs.
If moving out of the family home is too much of a wrench, however, the good news is that equity release schemes allow you to stay in your house or flat while still using the equity built up in it to provide some extra cash. The downside of the schemes, which work a bit like mortgages, is that you may not have much left to pass on to any children or other relatives.
But that's a small price to pay for a reasonable standard of living. For more information, try Age UK on 0800 169 6565.

Choosing the right annuity can have a significant impact on your retirement income. And as with most pensions, you automatically have what's called an 'open-market option' (OMO), you can scour the market for the highest annuity rate.
It is worth checking what your pension provider is offering first, though, as some companies offer guaranteed rates for existing customers that are likely to beat those available elsewhere. The Pensions Advisory Service on 0300 123 1047 is a good place to get some free advice.

On retirement, most people convert their pension fund into a guaranteed income annuity that pays out the same amount every month for the rest of their lives.
However, you can also choose an increasing annuity that pays out smaller amounts in the first few years but offers larger payments further down the line. This may prove a wise move if the rate of inflation remains at over 2%.

It is now easier to work later in life because the "default retirement age" has been scrapped.
People approaching retirement age and worrying about money can therefore choose to work for a few years longer - potentially transforming their financial situation. Other than the extra income from working, these people can look forward to higher state pensions, and higher annuity rates due to their greater age.
They can also benefit from bigger tax allowances and the fact that they no longer have to pay National Insurance contributions. Check out this nidirect website for more details.

You could get a much better rate with an impaired-life annuity if you have a medical condition that is likely to reduce your life expectancy.
Incredibly, even snoring, which is a common symptom of Sleep Apnoea could have an impact.
According to figures from MGM Advantage, a man with this condition could receive an extra £12,000 retirement income over the course of their retirement - or £571.44 extra money each year. Click here to find out more.

To maximise your retirement income, it is vital to ensure that you are receiving all the benefits to which you are entitled. These include the basic State Pension, and in some cases, the additional State Pension.
If you are on a low income, you could also qualify for the guaranteed element of Pension Credit, while those with some savings may get the savings element of this benefit. For more information about these and other benefits such as the Winter Fuel Payment, click here.

Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.

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Retiring abroad cost British pensioners £10.6 billion
Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship. Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so. To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension. In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.
Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.

The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.

Around 427,000 households in the over-70 age groups are either three months behind with a debt repayment or subject to some form of debt action such as insolvency, according to the Consumer Credit Counselling Service (CCCS).

Its figures also show that those aged 60 or older who came to the CCCS for help last year owed an average of £22,330. Whether you are retired or not, the best way to tackle debt problems is head on.

Free counselling services from the likes of CCCS and Citizens Advice can help with budgeting and dealing with creditors.

Importantly, they can also conduct a welfare benefits check to make sure you are receiving the pension credit, housing and council tax benefits, attendance and disability living allowances you are entitled to.

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The average UK pensioner household faces a £111,400 tax bill in retirement as increasing longevity means pensioners are living on average up to 19 years past the age of 65, according to figures from MetLife. And every year in retirement adds an extra £5,864 in direct and indirect taxes based on current tax rates to the costs for the average pensioner household. You can be forced to go bankrupt if you fail to pay your taxes, so it is vital to factor these costs into your retirement planning.It is also important to check that you are receiving all the benefits and tax breaks you are entitled to if you want to make the most of your retirement cash.

The cost of a room in a care home in many parts of the country is now over £30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than £35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: "For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap." However, the only other answer is to save more while you can.
Older Britons are often targeted by unscrupulous criminals - especially if they have a bit of money put away. For example, many over 50s were victims of the so-called courier scam that tricked into keying their pin numbers into their phones and handing their cards to "couriers" who visited their homes. It parted consumers from £1.5 million in under two years. Detective Chief Inspector Paul Barnard, head of the bank sponsored dedicated cheque and plastic crime unit (DCPCU), said: "Many of us feel confident that we can spot fraudsters, but this type of crime can be sophisticated and could happen to anyone." The same is true of boiler room scams that target wealthier Britons with money to invest, offering "once-in-a-lifetime" opportunities to snap up shares at bargain prices. Tactics to watch out for include cold calling, putting you under pressure to pay up or lose the opportunity for good, and claiming to have insider information that they are prepared to share with you.
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