Pension tips when retiring abroad
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
The thought of retiring overseas can be exciting for many people. Better weather, great cuisine and new experiences can be found in many popular expat locations including Spain, Australia, Turkey, Cyprus and Thailand. Expatriating, however, can also be daunting – as well as exciting. How can you ensure you retain the option to come back to the UK, if things don’t work out? Is moving your pension overseas a sensible option? How can you ensure that you have enough for covering the costs of an expatriate retirement?
In this article, our team at Castlegate (financial planners in Lincoln) address some of the key questions pertaining to pensions and retiring overseas. We hope you find this content helpful. If you want to discuss your own financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
Try and decide
Moving overseas is a big decision involving considerable time, energy and cost. You need to be confident, therefore, that it is the right course for you. As such, consider visiting your country of interest before relocating. This can help you establish whether you want to experience the food, climate, language and culture over many years, even decades, in old age. If you can, consider living there for 3-6 months as a “trial run”.
Assuming you still like the idea of retiring abroad, ask yourself some important questions. What kind of monthly living costs can you expect? Would you be able to buy a property there or would you need to rent? Do you need to learn the local language? Could you easily come back to the UK to visit friends and family, when needed? Could you drive in your new country or would you need to gain a local license? If you have pets, can you take them with you? Would you be able to access good quality health and social care?
How you intend to fund an overseas retirement is, of course, crucial. Here, a range of options can be available for would-be expatriates. One option is to rent out your UK property to tenants when you move overseas, using some of the rental income to cover your lifestyle costs. Whilst this may sound appealing, the reality is that costs often eat into your income including storage, maintenance and letting agent fees. If you have periods of tenant absences, moreover, then profits can be eroded within a matter of months. Rather than rely on property, therefore, most prospective expats will do better by financing their retirement through more reliable means like pensions, ISAs and other savings/investments.
Sorting through pensions
The first consideration here is your State Pension. The good news is that, once you reach your State Pension age, you can receive this income from anywhere in the world. Payments can be made either to a UK or overseas bank account. Bear in mind, however, that the UK “triple lock” system (currently suspended for 2021-22) will only be available to British citizens living in the UK, EEA, Gibraltar, Switzerland or a country which has a social security agreement with the UK. If not, then this means that your State Pension income is likely to lose purchasing power in your new country of residence as the cost of living rises. It’s also worth bearing in mind that the other, aforementioned jurisdictions may not be covered by the triple lock in the future.
Your workplace pension(s) and private pension(s) can, of course, be kept in the UK whilst you relocate overseas. After the age of 55 (or, 57 in the near future), you will likely be able to start drawing an income from these schemes. You will need to factor in currency conversion costs, however, as well as international transfer fees when moving the money to your new country – which all eat into your retirement income.
To help mitigate this, some people might consider transferring their UK pension overseas into a QROPS (i.e. qualifying recognised overseas pension scheme). However, this is only available in certain countries and comes with a considerable cost – e.g. 25% tax if you transfer to a scheme in Gibraltar or the EEA, but do not live there. There is also the possibility that you may need to move back to the UK, one day, due to factors outside your control. In which case, you may not be able to easily bring your pension back with you.
In closing, also make sure you consider the tax implications of retiring overseas, carefully. You should be aware that your new country of residence may tax your UK-derived income, such as UK-based pensions. From the UK side, however, you should only need to pay tax on your UK pension(s) if you are deemed resident for tax purposes. In which case, the amount due will be subject to your income. Bear in mind that you may also need to pay local tax on your pension if there is no “double taxation agreement” between your new country and the UK.
Conclusion & invitation
If you are interested in discussing your own financial plan or retirement strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585