Retiring abroad and your pension

happy senior couple in love....Pic: Shutterstock / kurhan

More and more Britons are choosing to spend their retirement abroad, and while most will be mortgage free, they will still have need of their pension for living expenses. If you are planning to retire to sunnier climes, here's what you need to know.

The state pension
Provided you have qualified for the UK state pension - and you will need to have paid a minimum of 30 years of National Insurance in order to do so - you are entitled to claim it no matter where you may be living. You can choose to have the money paid every four or 13 weeks, and into an overseas or UK bank. The benefit here is that if it goes directly into a bank in your country of residence, you won't incur expensive transfer fees and bank charges.

Given the new rules that are due to come into force whereby pensioners are able to withdraw their whole fund in one lump sum if they so wish, it is worth checking whether this money is taxable in your country of residence.

For those working abroad prior to retiring there, it is possible to claim a state pension in both countries. But bear in mind that the UK pension you claim will be calculated as of the date you ceased working in the UK, i.e. you will not be entitled to any rate increases, unless you are moving to a country within the European Economic Area. There are other countries with which the UK has a social security agreement, whereby you will also benefit from any pension rate rises, but it is worth noting neither Australia, New Zealand nor Canada have such an agreement in place.

Private pensions
Many British expats retiring in another country will have both a state and a private pension fund. The difference with a private pension is that it will usually be paid into a UK bank account, and can therefore end up being quite costly in terms of foreign exchange rates. Either you choose to transfer the money to your foreign bank account, incurring the bank's forex rate, or you can arrange for a currency broker to convert the sterling into the currency of your choice before transferring to your foreign account. Do be careful though that any currency broker you employ is fully authorised as a payment institution by the FCA (and not just registered with them) in order to sure that your money is safe should the firm go into liquidation.

Alternatively you can set up an international account with both sterling and euro accounts with the same bank. This typically allows you to transfer cash from one to the other without incurring charges, and it is often possible to agree a fixed exchange rate for up to 12 months. Before choosing your method of obtaining your private pension, it is worth checking whether transferring direct to your foreign account or employing a currency broker will work out cheaper.

Early retirement
If you are lucky enough to retire early and have yet to start withdrawing your state pension, you may want to consider moving your fund to a Qualifying Recognised Overseas Pension Scheme (QROPS). These can be either in your country of residence or in an offshore account, and have benefit that if you have been non-resident in the UK for five years, they then do fall under UK tax laws. However, before considering this option, it is essential that you seek professional advice from a specialist IFA to be sure it is the right choice for you.

Have you recently retired abroad? What advice would you give to others regarding their pension? Leave your comments below...
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