Unwary pensioners looking to retire to the sun without careful planning risk falling into some expensive pitfalls, advisers have warned, as new figures suggest as many as one in ten UK pensioners want to retire abroad.
Spain is the most popular destination for the 10 per cent of Brits seeking fun int he sun in their later years, according to research by Retirement Advantage.
Other popular hotspots include France, Portugal, Italy and the Far East, the poll of 1,200 pre-retirement adults found.
But financial issues can easily catch out retirees.
“If you retire to some countries, you will not be eligible for increases in the state pension, which currently rises by the higher of inflation, earnings or 2.5 per cent, under the ‘triple lock’ mechanism,” Andrew Tully, pensions technical director at Retirement Advantage, warned.
“Countries in the EU, as well as many others, have ‘reciprocal arrangements’ with the UK, meaning your state pension will increase each year. However, other countries including Australia, Canada and New Zealand do not, which means the state pension will not increase once you move overseas.”
He gave the example of a single person who retired in 2007 to a country where there is no reciprocal agreement in place, pointing out they would have seen their state pension frozen at £87.30 a week. It is now £122.30, a difference of 40 per cent, or £1,820 less annual income.
‘When we leave the EU, reciprocal arrangements will form part of any deal reached, so it is unclear what the position will be in future,” he added, referring to Brexit.
People planning a move overseas must tell HM Revenue and Customs, as it can allow any UK pension to be paid gross – no tax deducted – and taxed in the expat’s country of residence . This only applies if the country the expat lives in has a double taxation agreement with the UK.
If retirees decide to keep a house in the UK, they must let their mortgage provider and insurance company know if it will be rented or remain empty.
Geraint Davies, managing director at Montfort International, which specialises in helping Brits retire abroad, said those who move overseas rarely ever realise the importance of getting their tax and finances in order before departure.
“Those moving overseas need to be wary of the UK expat financial advisers they may well meet overseas.
“We are constantly being contacted by migrants in terrible states seeking help as they have fallen victim to predatory British advisers operating overseas who appear convincing in their sales approaches.
“These salesmen rarely have any meaningful qualifications.
“The same overseas firms keep on surfacing and the huge losses caused by a combination of these advisers poor and biased fund selection – usually connected to high commission investment vehicles – will often result in an immediate 15 per cent reduction of value.”
He said for retirees who fall foul of these unscrupulous advisers, chances of recovery and compensation are far from easy.
“Get advice before you leave the UK from specialist advisers who are experienced and qualified and regulated to deliver advice, to ensure investor protection.”
Steve Carlson, adviser at Cardiff-based Carlson Wealth Management, agreed.
“People considering retiring abroad should seek financial advice years in advance to maximise their retirement and tax planning.
“Tax on pensions varies enormously. ‘Tax free’ lump sums may be taxable in France, Spain may have higher rates of tax on drawdown income and Portugal may offer retirees the possibility of withdrawing their pension completely tax free.
“People need to plan for this in advance so they can take advantage of the most favourable tax treatment rather than leaving it until they move to another country and finding out too late that they could have done things differently.”