Spain again tops overseas retirement hotspots

by Ray Clancy on August 24, 2011

Connected in Spain?

Spain is the number one retirement destination for British expats, followed by Australia, the United States, France and then Ireland, new research shows.

It is not enough though, as people are planning ahead for their retirement, according to the study from Standard Life.

‘Retiring abroad is a dream for many people, but does require careful planning and advice. Many people think living abroad is cheaper than living in the UK, but this isn’t always the case,’ said John Lawson, head of Pensions Policy at Standard Life.

‘Doing your homework in advance of moving, matching your retirement income and expenditure, and making the appropriate decisions around purchasing an annuity or using income drawdown are key considerations. Your retirement income could also be subject to exchange rates and currency fluctuations, as well as local tax laws,’ he explained.

‘You also need to think about your state pension and what, if any, reciprocal agreement is in place. A reciprocal agreement entitles you to any increases in the UK state pension, paid for by the country you retire to. However, if there isn’t a reciprocal agreement in place, then you need to be very careful your retirement income is sufficient to cover your living costs over a long period of time. Over a 20 year retirement, your basic state UK pension could halve in real terms if a reciprocal arrangement is not in place,’ he added.

The company also pointed out that if an individual moves abroad permanently, any increases in their UK state pension will only apply if they are living in an European Union country, including Gibraltar and Switzerland, or a country with a reciprocal social security agreement with the UK.

Where the individual is living outside these countries, the amount of UK state pension they will receive each year is frozen at the amount initially paid when first claimed or if the pensioner emigrated more than one year after payment began, at the rate in force when emigrating. Popular retirement countries outside these reciprocal agreements include Australia, Canada, New Zealand and South Africa.

They recommend that would be retirement expats seek independent financial advice before making plans about future pension provision or transferring their pension overseas as well as checking what reciprocal basic state pension agreements are in place with the destination country, if any. This can be done through the Department for Work and Pensions.

And they also recommend that people make sure that they can afford to withstand adverse currency movements as a UK pension will be paid in Sterling. For example, the £/€ exchange rate for the week of 20 August 2007 was €1.4745 £. On 17 August 2011 the exchange rate was €1.1447 to the £. This means someone retiring to Europe four years ago has lost nearly a quarter of the spending power of their UK pensions, and that is before taking account of inflation.

State pension ages also need to be checked. For women, the SPA is rising from 60 to 65 between 2010 and 2020, with further rises to 68 currently expected to take place by 2048.

It is also worth welfare rights abroad. Some UK benefits are not payable outside the UK, others apply only in the EU or in countries which have agreements with the UK.

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