Is retiring abroad still an attractive option for UK retirees?

26 July 2024

Written by Retirement Line

Brexit, inflation and cost of living increases have all introduced new considerations for those contemplating retiring abroad. So is it still an attractive option for UK retirees?

The idea of retiring abroad has often offered the promise of a better quality of life, better weather, lower living costs, and the excitement of a new adventure. But does it still make sense in a post-Brexit world and a challenging economic climate?

In this article, we take a look at the current landscape and break down some of the specific issues.

Receiving your State Pension abroad

One of the primary concerns for UK retirees considering a move abroad is the accessibility and value of their State Pension. Fortunately, it is possible to receive your UK State Pension abroad, but the process and implications vary depending on the destination country.

In the UK, the State Pension benefits from the ‘triple lock,’ which ensures it rises by the highest of average earnings growth, inflation, or 2.5%. If you move abroad, this protection may not apply. 

Your State Pension will only continue to increase each year if you retire to a country within the European Economic Area (EEA), Gibraltar, Switzerland or a country that has a social security agreement with the UK, such as the USA, Turkey, Israel and Jamaica.

So, if you choose to retire to a country like France, Spain or Italy, which are part of the EEA, your State Pension would continue to rise annually in line with the triple lock. 

However, if you move to a country outside these specified areas, such as Canada, South Africa or Australia, your State Pension could be frozen at the rate it was when you left the UK.

This is an important consideration as it could significantly affect your long-term financial planning in retirement. In addition, any entitlement to Pension Credit ceases if you move abroad permanently.

The good news is that if you do move to a country where your State Pension does not rise while you reside there, but you later return to the UK and remain here for more than six months, it will be increased to the current rate.

Taxation on State Pension when paid abroad

The taxation of your State Pension can also vary depending on where you move to. This can be a complex area so please see paying tax on your UK income if you live abroad at GOV.UK for details.

Private pensions

For those with private pensions, you can typically arrange for your pension provider to pay your pension into an overseas bank account, wherever you move to. 

Do check your scheme’s rules though, as some may only pay into a UK bank account. Others may charge a fee to pay your pension into an overseas account. 

In addition, your pension income could be paid in pounds sterling, which exposes you to currency fluctuations. You will need to be comfortable with your income rising and falling according to the exchange rate.

If currency issues are of concern to you, there is the option of a ‘Qualifying Recognised Overseas Pension Scheme’ (QROPS).This will pay your pension in your local currency to minimise the uncertainty of exchange rate. QROPS can be complicated though, so do speak to a financial adviser before making your decision.

You should also be aware that you may be unable to purchase an annuity with your pension pot after you leave the UK. The Association of British Insurers explains that different regulatory regimes in other countries can prevent insurers from being able to offer an annuity to somebody living abroad. You may therefore need to set up an annuity before you move abroad, if this is your chosen retirement income solution. 

There are also important tax implications to consider:

• UK taxation. Private pensions are typically subject to UK tax rules, but you might be able to reduce your tax liability through double taxation treaties.

• Local taxation. Your pension income might also be subject to local taxes in your new country of residence. Be sure to seek advice from a tax professional familiar with both UK and local tax laws of the country you intend to retire to.

Impact of Brexit on retiring in the EU

Brexit has somewhat complicated the process for UK retirees wishing to move to an EU country. Here are some key points to consider:

Visas and residency

Post-Brexit, UK nationals no longer have the automatic right to live in EU countries. Instead, you will need to apply for a visa or residency permit, which varies by country. Here are some examples of current requirements in destinations popular with UK retirees:

• France. After three years living under a residence permit you must apply for a Carte de Sejour for Retirees. You can apply for this type of residency card at the prefecture or sub-prefecture closest to your French home, providing you do so before your residence permit expires.

• Spain. A non-lucrative visa is required for those who do not intend to work in Spain. This allows you to live, but not work, in Spain and apply for a one-year residency permit which you can apply to extend for up to four more years. You must show proof of financial means and health insurance, and other documentation, to obtain this.

• Portugal. The D7 or Retirement Visa is popular among retirees as the proof of sufficient income it requires can be passive income, such as from a pension and investments. 

These are just three examples and each country has its own application process and requirements, so thorough research and planning are essential.

Healthcare

Access to healthcare is another critical factor when planning your retirement abroad. If you receive the UK State Pension and move to an EU country or Switzerland, you'll need to apply for a certificate of entitlement known as an S1 form. This shows that your state healthcare is paid for by the UK.

Make sure you fully understand the healthcare entitlements and requirements in your chosen country. While the UK and EU have reached agreements that allow UK retirees to use their S1 form to access healthcare in many EU countries, the specifics can vary.

Also bear in mind that if you receive the UK State Pension AND a pension from the country you are retiring to, then you cannot apply for an S1 form. Instead, the country you live in will be responsible for your healthcare.

You can apply for an S1 form up to 90 days before you move to live in an EU country.You need to have an address in the EU country you are moving to for the form to be issued, though this address can be temporary.

Is retiring abroad still worth it?

Retiring abroad can still be a fulfilling and financially viable option with the right preparation and support. As with any major life decision, being informed and proactive is the key to a successful transition.

Despite the added complexities introduced by Brexit and the need for careful financial planning, retiring abroad remains an attractive option for many UK retirees. The allure of a warmer climate, potentially lower living costs and a new lifestyle can potentially outweigh the bureaucratic hurdles.

However, it is vital to:

• Research extensively - understand the visa requirements, healthcare provisions and tax implications in your chosen destination.

• Plan your finances - ensure you have a clear picture of how your State and private pensions will be paid and taxed.

• Seek professional advice - given the various financial considerations of retiring abroad, it might be worth seeking advice from a financial adviser who specialises in expatriate finances.