Planning carefully will help you understand which of these factors will affect your ability to enjoy your retirement and whether your retirement income will last as long as you want it to.
Many people would like to retire to Spain, France or Portugal due to their pleasant climates, lifestyles and low costs of living.
However, they need to do some research into how the country's tax system will affect the efficiency of their pension income and their investment and estate planning.
Retirement Planning for Expat
Planning for retirement can be a daunting task for those who never leave their home country.
For expats, it can be even more complex, as assets might be spread across multiple countries and involve two or more tax authorities.
That said, the principles are the same. Prepare well in advance, know the value of your assets and pension plans, understand where and how you will be taxed, and be conservative regarding expected investment returns.
Of course, as well as the financial planning aspect, it’s also important to research ‘bucket list’ ventures—maybe a round-the-world trip, a visit to Machu Picchu or hang-gliding in the Swiss Alps.
It’s important to reward ourselves after decades of work.
It’s important to reward ourselves after decades of work.
Retirement Planning Statistics (UK)
Recent research highlights why early retirement planning is essential:
These figures illustrate why having a structured financial plan is vital, particularly when retiring abroad, where tax and healthcare systems differ.
Where to Start With Your Financial Planning
First, we need to understand our current position.
Obtain pension plan illustrations which show the level of income we expect to receive on our chosen retirement date. These might be a combination of:
- State Pensions
- Final Salary schemes
- Personal Pensions
The next step is to understand how much of that income is guaranteed and how much is dependent on market forces.
Typical Retirement Income Needs (UK Example)
According to the Pensions and Lifetime Savings Association Retirement Living Standards, the estimated annual income required for retirement is:
Living in countries such as Spain, France, or Portugal may reduce some living costs, but healthcare, taxation and currency fluctuations should always be considered.
When Should You Start Retirement Planning?
A useful approach is to review your retirement planning at key stages of life.
Pensions
Final Salary schemes usually pay a guaranteed income that is indexed in accordance with the scheme rules. This could be a minimum percentage per annum, based on the Consumer Prices Index (CPI) or the Retail Prices Index (RPI).
It’s also important at this stage to check the payment and increase the record of your pension plan. Have there been any significant alterations to benefit levels?
Most Final Salary schemes also offer a tax-free lump sum and reduced pension option. This may seem attractive if you have sufficient other income, but be aware that it may be taxable in your country of residence.
Pension Commencement Lump Sum (PCLS) payments from UK Personal Pensions are paid tax-free to UK residents. Again, this may not be the case in the country you retire in. It’s best to take your PCLS whilst still a UK tax resident.
Some UK Personal Pension plans are only available as annuities. If you hold any of these plans, you should review your options.
Post-Brexit, UK pension providers can not pay annuities to non-UK residents. This means your funds are stuck unless you transfer to someone who can provide flexible benefits.
Thankfully, several specialist pension providers only deal with non-UK residents. UK-only providers can’t accept transfers from EU residents, so you need to check which companies can.
As a matter of course, it is vital to use the services of a Tax Adviser in the country in which we will become, or are already, tax resident.
Tax Advisers can appear a little expensive; however, a good one will more than justify their fee with the quality of advice and savings made.
Investment Portfolios
The next step is to assess the value of our other investments and assets.
Fixed Assets, such as rental properties, could be subject to tax in the country where they are based. How is the income going to be taxed in your new country? Does the Dual Tax Treaty help or hinder, or can you choose the most tax-efficient route?
Investment funds, such as onshore Investment Bonds and ISAs, are highly tax-efficient for UK taxpayers. This probably isn’t the case in your new country; therefore, you need to check with your Tax and Financial Advisers before taking withdrawals or realising capital gains and understand how dividend income is taxed.
As your country of tax residence changes, so does your tax planning.
Investment plans that were tax-efficient in the UK probably won’t be in your new home country.
ISAs are a good example: untaxed in the UK, but taxable in other EU countries.
There are alternatives you should explore to see if you can retain some or all of those tax benefits.
Your Financial Adviser can help here.
Common Retirement Planning Mistakes
Many retirees underestimate the complexity of retirement planning, particularly when moving abroad. Common mistakes include:
- Underestimating how long retirement may last
- Failing to account for inflation
- Not understanding cross-border tax rules
- Holding investments that are inefficient in the new country of residence
- Ignoring currency risk when living in the Eurozone
Forecasting Your Retirement Income
When you have an indication of your expected total gross income, you should request a simulation of future taxation from your Tax Adviser.
You will then have a good idea of your net income.
Is this sufficient to live on for the rest of your life?
Remember, over time, inflation will erode the value of your income and assets.
Are you prepared for this?
Investment Risk and Inflation
This issue is particularly important for your investment portfolios.
Markets don’t always rise year-on-year. Sometimes they fall; we’ve all seen the effect of corrections and crashes on investment values.
Similarly, cash deposit accounts don’t always keep pace with inflation and usually produce returns below inflation after tax.
Despite the various corrections and crashes we’ve experienced in the last 40 years or so, equity funds have always outperformed cash over every 5-year rolling period.
It is important to retain your investment funds in retirement, although you may need to reassess your risk profile.
A good tip is to keep a cushion against unexpected market turbulence by holding some money in cash accounts.
This helps prevent having to sell investment funds when markets are sluggish or your portfolio is showing losses.
It is advisable to balance expected investment returns with the level of risk you are comfortable with.
Although you might be retired, you should still allocate funds to:
- short-term needs
- medium-term needs
- long-term requirements
Cashflow Planning
Creating your personal cashflow model is a useful tool for long-term planning of income and capital requirements.
Statistics tell us we will live longer than our predecessors, and we need to be certain that our money outlives us!
Our mix of investments and cash holdings should reflect when we need money and how much we need.
Why Retirement Planning is Even More Important for Expats
For expatriates retiring in France, Spain or Portugal, additional factors must be considered:
- Cross-border pension taxation
- Double Tax Treaties
- Local healthcare systems
- Currency exchange risk
Estate planning under different succession laws
Working with advisers who specialise in expat retirement planning can help avoid costly mistakes.
Currency Management
Organising your financial affairs in the most efficient way possible can save time and money.
Currency considerations are a normal part of expat life.
If, say, your pension can only be paid into a UK bank account, it’s worth using a specialist currency conversion company to transfer funds into your Euro account.
Administration
Whether taking income from pensions or investments, you need to know how providers’ administration functions work.
Questions to consider include:
- When do they pay?
- Do they charge for transferring money?
- Is it better to withdraw funds monthly, quarterly or annually?
- What about local bank account fees?
These can be punitive in some countries, but solutions are available.
Advice
In my view, it’s vitally important to use suitably qualified and experienced Financial and Tax Advisers.
First, source a Financial Adviser.
They should be able to refer you to a Tax Adviser who can help with your individual circumstances.
Tax Advisers vary in cost and competence. It’s usually worth paying a little more for someone experienced in dealing with expats and with an international outlook.
Value for money is more important than simply keeping costs as low as possible.
Your Financial Adviser should be able to help with the management and administration of your pensions, investments and cashflow planning.
Most Financial Advisers have extensive contacts in the expat world and can also provide referrals to lawyers, relocation agencies, and estate agents.
Inheritance Tax and Succession
When the end eventually comes, your estate should be properly arranged to take care of inheritance and succession taxes.
The new UK rules regarding ‘Long Term Residence’ need to be understood and correctly applied to your asset position.
Clearly, a local will is essential; it may also be necessary to write one in the UK or another country in which you hold assets.
Nominating beneficiaries with your investment and pension providers can help ensure your wishes are adhered to and that your estate is legal if forced heirship is an issue.
It may also be a good idea to invest in a funeral plan.
Policies vary, so make sure you buy the best one for your individual situation.
Your FA can also help with this and work alongside your legal representatives to make sure your planning is effective even after you’ve shuffled off this mortal coil.
Summary
It’s never too early to plan your retirement.
Being prepared can make the difference between a smooth transition and a last-minute rush from working to relaxing.
Retirement planning is about more than simply accumulating savings. It involves structuring pensions, investments and tax planning so that your income remains sustainable for the rest of your life.
Make sure you are prepared for a few shocks along the way.
It can be difficult to change your mindset from saving to spending, for example.
Do be aware of potential unforeseen costs such as medical care and/or one-off, unavoidable expenses.
Remember, tax rates don’t stay the same forever.
Your investments and pensions should be sufficiently flexible to react quickly when circumstances change.
Ideally, you will have a variety of taps you can turn on or off at any time.
Finally, take your time sourcing advice.
Companies and individuals are all different; you need to find the one you are most comfortable dealing with.
Do ask for written confirmation of costs and charges before making any changes to your investments.
Reputable firms will be only too happy to provide quotations which include all fees and charges well in advance of implementing product recommendations.
For UK nationals retiring in France, Spain, or Portugal, professional guidance is particularly valuable given the complexity of cross-border taxation and financial regulations.
Axis Financial Consultants specialises in helping UK expatriates structure their pensions, investments and financial planning efficiently across multiple jurisdictions.
If you are considering retiring abroad or want to ensure your retirement plans remain on track, contact Axis Financial Consultants for personalised advice tailored to your circumstances.
Frequently Asked Questions About Retirement Planning Abroad
How much money is required to have a good quality of life when retired?
The required amount depends on the individual's desired standard of living. The Pensions and Lifetime Savings Association has stated that a couple living in the UK who want a good quality of life will likely need an income of over £50,000 per year from their retirement savings.
Can I receive my UK pension while living in another country?
Generally yes. Most UK pension schemes pay their beneficiaries regardless of where they are living, as long as you provide a valid address for payment. However, the tax implications of receiving a UK pension while living in another country will depend on which country you are living in and what your current Double Taxation Agreement (DTA) states about taxing your pension income.
Will my UK State Pension rise each year if I move to another country?
Whether or not your UK State Pension rises annually depends on the country you are living in. Some countries, like the UK, receive an annual inflation-based rise; others do not.
Should I draw down my UK pension lump sum before I move abroad?
Drawing down your UK Pension Commencement Lump Sum can be advantageous, since it may be tax-free for you in the UK, but could be subject to taxation in the country you are planning to move to.
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