Where do you dream of spending your retirement and how can you ensure your fantasy is fulfilled?
Whether you’ve imagined retired life on the white sandy beaches of Spain’s Asturias, drinking in the coastal vistas of Apulia in Italy, or exploring the historic lanes of French Lyon, one thing’s for sure – you deserve to enjoy every minute of your later years.
Of course, to do this requires some planning and preparation. Below, international payments specialist, Clear Currency, reveals what you need to know about managing your UK pension overseas, and how to get more from your savings so you can afford the move abroad.
Q: Why might someone consider transferring their pension abroad?
A: Usually an individual will move their pension overseas to use it to purchase their dream home and enable them to spend their retirement in a different country. An estimated 1.24 million British expats live in Europe, with approximately 200,000 to 250,000 of these being retirees (British in Europe).
Q: What are the most popular countries for British expats to retire to?
A: Some of the top destinations for UK retirees include:
- Spain – The country’s sunny climate, stunning locations and relaxed way of life make this one of the top destinations for Brits to retire. On average, the cost of living is up to 30 per cent cheaper than in the UK. Property prices are also typically much lower meaning many can afford to live here on a pension that provides an income of around £15,000 as well as their state pension (Mirthy).
- France – A culturally diverse and enchanting location, France offers many options for retirees. You can choose to make your home in the historical Aquitaine region, the world-famous capital, Paris, or the beautiful coastal region of Poitou-Charentes. Living costs in France are 14 per cent cheaper than in the UK, with housing, transport, and entertainment each costing less, helping your pension to go further (Expatistan).
- Italy – If you’re looking for a vibrant location with ample culture, history, gorgeous food and beatific scenery, Italy is perfect. Florence, Rome, Puglia and Sicily are among some of the best places to live (Housing Anywhere). With low crime rates, an excellent healthcare system, and up to 22 per cent cheaper living costs than in the UK (Expastistan), it’s easy to see why it’s a retiree hotspot.
Q: How can you transfer a pension overseas?
A: You have two options for managing a pension overseas. You can transfer to a Qualifying Recognised Overseas Pension Scheme (QROPS) or a Self-Invested Personal Pension (SIPP). SIPPs can offer you greater control over your pension pot and reduce your tax bills.
QROPS are overseas pension schemes that meet the legislative regulations in your new country of residence, allowing you to pay your pension into an overseas bank account. They also abide by HMRC rules, enabling you to transfer your pension abroad without suffering additional charges or incurring unauthorised payments.
Q: How can Brits access their UK state pension when living abroad?
A: You can claim your state pension from anywhere in the world. However, you will only receive an annual state pension increase that allows for cost of living rises, in countries where this has been agreed between them and the UK (PensionBee). Countries that hold this agreement with the UK include Switzerland, and countries in the European Union (EU) and the European Economic Area (EEA).
Your state pension can be paid into a UK account, or an international bank account, every four or 13 weeks, depending on which you choose. If you opt to have your pension paid into an international account, then it will be transferred in the local currency, meaning the amount you receive will depend on the current exchange rates.
To mitigate exposure to currency risk, it's worth consulting a dedicated currency specialist who can outline some of the tools and products available to you.
Q: Will I need to pay tax on my overseas pension?
A: This will depend on the type of pension scheme you have, where you choose to move, and your residency status.
If transferring to a Europe-based QROPS pension scheme, you’ll only need to pay tax on it, if you move outside of the UK, Gibraltar or EEA within five years of transferring your pension (PensionBee).
Some countries have a double-taxation agreement with the UK, which means you won’t be taxed twice. It’s worth researching this before you move, and informing HMRC of your relocation, to ensure you pay the right amount of tax.
Q: What impact is inflation having on overseas pensions?
A: Inflation rates are constantly changing, though 2022 has seen some of the highest inflation rates in the UK since 1982 (Trading Economics). This can affect the value of your money over time and leave you with reduced purchasing power later in life (PensionBee).
Once you retire, you’ll be reliant on your pension for support, which is why it’s important to consider how you invest and access your pension, to offer some protection against rising living costs.
Drawing down from your pension could mean inflation continues to eat away at your savings, whereas purchasing an escalating annuity may lead to increases over time to help you keep up with fluctuating rates (PensionBee).
It’s also a good idea to monitor how your pension is growing (Portafina). You can ask your pension provider for an up-to-date report to check its performance. Speaking to a registered financial advisor can help you make informed decisions about where to invest your pension and what contributions to make.
Q: How could the falling value of the pound affect your pension abroad?
A: The decline of the pound (GBP) against the United States dollar (USD) and the euro (EUR) could mean your pension is worth less when it’s transferred to another currency and may decrease your spending power when emigrating (The Times).
Recently introduced tax cuts, the Russia-Ukraine conflict and Brexit are all contributing factors to the declining value of sterling.
When managing your pension overseas, it's essential to monitor geopolitical and social events that are affecting the international market - as they could expose your finances to currency risk.
Q: How can Clear Currency help with managing your overseas pension?
A: When signing up to Clear Currency, you’ll be assigned a dedicated account manager. They can provide information on the range of FX tools and products available, that can help minimise your exposure to currency risk. Clear Currency's secure online platform allows you to manage all your international payments in one place - across 35 currencies.
You've worked hard for your money, which is why it's vital to know how best to protect it, and ensure you can live out your retirement in the place you've always dreamed of.
Clear Currency is FCA-regulated and has a 5* Trustpilot rating.
To protect against currency risk derailing your retirement plans, sign up for a free account at clearcurrency.co.uk.
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