Figures show inadequate UK state pension for what it is

If you’re planning on retirement in a cheaper, warmer country, be careful not to choose one in which your UK state pension is frozen.

Shocking new calculations about the average British worker’s wages and their relationship to the UK state pension amount may affect the choice of retirement havens for those needing to save money for their older years. The average UK worker earns a take-home pay after tax of around £21,419 per year, with the index-linked full British state pension standing at £8,545 per year. The figures indicate workers on average salaries pass the full amount of the annual state pension after five months beginning in January. In other words, after the initial 101 working days, an average full-time employee has earned the equivalent of one full year’s UK state pension. Of course, for expats on frozen pensions, the news is far, far worse.

Research by financial mega-company Aviva found that, for almost 17 per cent of all UK retirees, their only annual source of income will be the state pension. Given the cost of living, it’s obvious that living in the UK in retirement on just £8,546 a year isn’t possible, nor is making private pension provision for old age on the average UK worker’s salary, whatever insurance companies like to spin in their relentless hunt for customers. Auto-enrolment in the government’s pension scheme will give some relief, but the self-employed are likely not be able to afford a top-up, especially considering the probable impact of Brexit on costs in general.

For their own benefit, insurance companies such as Aviva are making much of the pensions versus cost of living gap but giving no guarantees as to the success of their plans, as leaving the EU is likely to affect the financial industry more severely than they’re letting on at present. Aviva is referring to the UK state pension as a national treasure (!), but no authority is pressing for it plus the added income from a small private pension to be tax exempt.

For those determined to retire overseas in the hope of finding a country with a cheaper cost of living, the same small private pension plus the miserly UK state version might just be enough, provided they’ve chosen a non-frozen pension destination. At least, once you’re out of the UK, you’ll not be paying tax on your money.