Sun, probably sea, relaxed, friendly people and low cost of living. Retirement outside the UK has some big attractions.
Best of all, a home in the sun may mean your retirement savings stretch further, giving you a higher quality of life.
Of course, enjoying a holiday in a particular location is one thing, but living there all year round could be quite another. The locals who delight in your presence (and your spending) when you visit for a fortnight may be less welcoming when you take over a home permanently.
You may need to learn the culture as well as the language if you are going to fit in. Relations with friends and family back home might become strained if you can only meet via Zoom.
But, depending on where in the world you want to head for, retirement overseas could offer real potential for a happy retirement.
But what about the financial impact?
The financial advantages of living abroad
There could be some financial advantages in making your home in some parts of the world.
The ability to buy a comfortable home in a good location could be one. Retiring in the location of your dreams can be a big attraction to people.
Your retirement income could go a great deal further, and further still if you sell up your property in the UK.
But there could be some downsides too.
The financial disadvantages of living abroad.
Healthcare will be vital sooner or later. Research the quality and accessibility of healthcare services in your prospective destination. Some countries offer excellent healthcare at a lower cost than the UK, while others have limitations. You may need private health insurance, which can be a substantial financial burden.
You also need to look at your tax position. Your residency status becomes a significant factor. If you become a tax resident in another country, you will likely be subject to that country’s tax laws, which can be quite different from the UK’s. Many countries have bilateral tax treaties with the UK to prevent double taxation, but the specifics can vary. With some countries, there may be a need to return to the UK for a set period each year to mitigate tax liabilities. This could be a chance to catch up on friends and family, but it will mean additional costs.
What about your pension?
Personal or workplace pensions can be paid to you wherever you live.
However, some providers might only pay into a UK bank account. Others might pay into an overseas bank account but with extra charges.
Your pension income will be paid in pounds sterling. This means it will be affected by fluctuations in exchange rates when you convert it to your local currency. You need to be prepared for your income to rise and fall, and if rates go against you, it can seriously affect how much you must live on.
If you live abroad permanently, you’re likely to be classed as a non-UK resident, but still have to pay UK tax on pension income generated here. You might also have to pay tax on it in the country you live in.
If it has a double-taxation agreement with the UK, you can claim tax relief in the UK to avoid being taxed twice.
What happens to the State Pension?
You can claim and receive a UK State Pension while living overseas. But Pension Credit stops when you move overseas permanently. What’s more, the UK state pension is frozen in certain countries, meaning you will receive the amount set at the time you move. If you move to an EU/EEA country or a country where the UK has a reciprocal agreement, your pension will be uprated. However, retirees in other countries may face a reduction in their purchasing power over time.
Start planning now
If you are thinking about a retirement in the sun, you need to understand all the financial aspects well before you go.
At Continuum we can work with you to understand the resources you can call on, and the challenges you may face. We can help find the most appropriate ways for your income, pensions, and investments to support your desired lifestyle.
It may be too early to start packing, but it’s not too early to get our expertise behind your plans.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.
A pension is a long-term investment, the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken.
The Financial Conduct Authority does not regulate taxation advice.