Dreaming of spending your retirement somewhere other than the UK? It’s a dream thousands of Brits turn into a reality every year. From the sunny beaches of Spain to cities in the USA, retirees are choosing to spend their years after work in very different locations to where they grew up, with Australia coming out top.
Research looking at the top places to head to in retirement analysed where most expats were claiming their State Pension. It discovered more retirees were choosing to head down under, knocking Spain off the top spot.
According to the research the top destinations for British expat pensioners are:
- Australia – 234,880
- USA – 134,130
- Canada – 133,310
- Ireland – 132,650
- Spain – 106,420
- France – 66,970
- New Zealand – 65,370
- Germany – 42,050
- Italy – 35,160
- South Africa – 33,790
From seeking warmer climates to the draw of adventure, there are many reasons you may be considering retiring in a new destination. However, before you start making plans, weighing up the financial implications of retiring abroad is crucial.
Claiming the State Pension abroad
For many people, the State Pension will provide the foundation for retirement income. Assuming you have enough National Insurance credits, the State Pension would currently pay £8,546,20 annually. It’s an amount that rises alongside inflation if you remain in the UK and provides a dependable source of income.
If you choose to retire abroad, the good news is you can claim your State Pension. It will be paid every four or 13 weeks in the local currency. As a result, fluctuations in the exchange rate may mean the amount received can vary.
However, the drawback is that your State Pension may not increase annually, gradually reducing your spending power. Should you decide to retire to a country that’s part of the European Economic Area or has a social security agreement with the UK, your pension will increase. But this isn’t the case for all retirement hotspots; retirees in Australia and Canada, for example, won’t benefit for State Pension rises.
There’s also tax to consider when claiming your State Pension abroad. Whether you remain a UK resident for tax purposes or are an overseas resident, you may have to pay UK tax on the income. You may also have to pay tax in the country you’re living in. If you’re taxed twice you can usually claim tax relief and if a country has a ‘double taxation agreement’ with the UK, you’ll only have to pay once. Taking advice from tax experts in the country you intend to move too is essential.
Your other retirement provisions
Much like when you’re planning retirement in the UK, you need to consider your other retirement provisions too. This may include Personal Pensions, Defined Benefit Pensions, investments, savings, or property.
The first step to take is to fully understand your pension provisions, such as getting a projected value for pensions at the point you plan to retire. This is crucial for calculating how income and living expenses match up.
If you have a Defined Benefit pension you can access this abroad and receive the same benefits, the income may need to be paid into a UK bank account. You can also transfer a Defined Benefit scheme to an overseas alternative. However, this is rarely a good idea and you may lose out.
If you have a Defined Contribution pension, you have two options; you can either leave your retirement savings in the UK or move your pension pot abroad.
The first choice means you still have the same options you would if you remained in the UK. Usually, the money will be paid into a UK bank account, allowing you to transfer or withdraw money yourself. If you want your pension paying straight into an overseas bank account, you may face an extra charge.
Moving your pension abroad can make it easier to access your money, however, there are a few drawbacks to consider. You may have less choice about what to do with your pension and pay more charges. You may also find that transferring will change the amount you receive. If it’s an option you decide is right for you, be sure to transfer your retirement savings into a qualifying recognised overseas pension scheme to avoid tax charges.
A key point to keep in mind is the exchange rate when transferring assets abroad. Fluctuations do happen, so ideally, you should build a buffer when withdrawing your income. As with the State Pension, tax should also be an area you look into when taking an income as this varies from destination to destination.
The cost of living
With an idea of your pension provisions and your options for accessing them, you need to put these figures into perspective.
There are two key costs to consider here. The first is the initial cost of moving and setting up your home in a new location. The second is how much income you need to achieve the lifestyle you want. Researching the cost of living in the area you plan to move to is essential. Calculating your expenditure can help ensure your plans are realistic and you don’t face unexpected costs. Ask yourself:
- How does the cost of living compare to the UK?
- Do luxuries cost more where you plan to retire?
- Will you frequently be travelling to the UK?
Preparation is key to achieving the retirement lifestyle you want, whether you want to stay where you are or move to pastures new. If you want to understand the level of income you can expect to receive when you retire and how it can be used to reach aspirations, please contact us.