Make a financial plan for your retirement abroad
Iain Yule considers the financial implications of your decision to retire overseas.
Iain Yule, is Editorial Director of World of Expats which offers a wealth of information on the whole expat experience free of charge.
One of the essentials if you are thinking of retiring abroad is to make sure your money is in good shape for your new life overseas.
So make a plan based on a few basic considerations:
- • Careful money management
- • Take your pension with you
- • Check your retirement resources
- • Don’t get frozen out of a full pension
- • Get further information
Careful money management – what it means to be a British non-resident
Make the most of your potential new status as a British non-resident, you could benefit from a lower cost of living and your tax bills may also be reduced.
Some forward planning is required to make this happen.
One of the secrets lies in moving your money ‘offshore’ before you move. If you leave money behind in the UK it will be assessed for income tax. When you are non-resident you do not have to pay UK income tax.
Retaining a UK bank account that pays interest or investments that pay dividends means income tax will automatically be deducted.
So, you should let the taxman know you are becoming non-resident using forms available from your local tax office or at www.hmrc.gov.uk
Even if you are receiving your UK bank interest tax free, you may still have to complete a UK self-assessment tax form to declare it as ‘UK source income’. Open a bank account offshore in the Isle of Man or Channel Islands, however, and you can have any interest you earn roll up tax free, without having to declare it to the taxman while you are non-resident.
You can even move your money offshore before you leave. As long as no interest is paid on it until you are non-resident it will grow tax free.
Take your pension with you
These days it is quite easy to make sure that you get any pension entitlement from the UK sent to your new home overseas. UK state pensions can be paid into a bank account wherever you go, but first find out if you have a full entitlement to it and whether it will rise in line with inflation.
If you have missed even a relatively small number of years’ national insurance contributions (NICs) you may face a reduced rate of state pension. If you have ‘missing years’ when you have not been paying NICs you can buy back some arrears to make up the required 30 years’ contributions (rising to 35 years for those reaching state retirement age after 6 April 2016).
See the Check your retirement resources section at the end of this article for how to establish whether you are eligible for a full UK state pension.
Even if you are fully eligible for this pension, it may not be protected against inflation in future years. A bizarre anomaly means that in some popular retirement destinations the rate of UK state pension you receive will remain frozen at the rate first paid to you. (See below)
It’s important to factor currency fluctuations into your cost of living overseas. If the pound weakens against your host country’s currency then you will have less to spend locally.
As you approach retirement abroad it may be best to start to convert at least some of your income-producing assets into the currency of your new country. That way you will lessen any great exchange rate shocks.
Check your retirement finances
It is quite easy to get a personal state pension forecast if you contact the government’s pension service. Have your national insurance number to hand.
The service will tell you what your current eligibility for UK state pension is and how much you can pay to replace any missing national insurance contributions in order to boost your pension entitlement, if necessary.
There’s a wealth of information on how UK expatriates are viewed by the government, its tax collectors and social services.
You can download all necessary forms to complete to make sure you get all the tax advantages of being non-resident.
If you’re heading abroad, don’t forget to track down any pension you are due from employers. In the first instance you should contact any employer with whom you held an occupational pension.
If you have difficulty doing this there is a service that may be able to help. The Unclaimed Assets Register (UAR) tries to reunite pensioners with occupational pension entitlements they may have forgotten.
You can contact the UAR. There is a small fee to register for a pensions search.
Don’t get frozen out of a full pension
The UK does not index-link state pension payments made to British retirees in: Australia, Canada, Hong Kong, New Zealand, South Africa, Trinidad & Tobago and Zimbabwe. This means that pensions do not increase each year in line with inflation, gradually eroding their value over time. So these may be warmer climes, but your state pension will be frozen.
Elsewhere, just as in Britain, state pensions rise in value with the UK’s cost of living.
The contents of this article are for reference purposes only and do not constitute financial or legal advice. Independent financial or legal advice should be sought in relation to any specific matter. Articles are published by us without any knowledge or notice of the circumstances in which you or anyone else may use or rely on articles or any copy of the information, guidance or documents obtained from articles. We operate and publish articles without undertaking or accepting any duty of care or responsibility for articles or their contents, services or facilities. You undertake to rely on them entirely at your own risk, and without recourse to us. No assurance of the quality of articles is given or undertaken (whether as to accuracy, completeness, fitness for any purpose, conformance to any description or sample, or otherwise), or as to the timeliness of the publication.
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