Retiring abroad? Understand your pension options

The freedom of retiring abroad as an expat can be tempting, and with many more countries embracing the global citizen lifestyle, the world really is becoming your oyster.

retiring abroad

Deciding where to settle down can be an overwhelming decision; from quality of life and your preferred year-round climate to income streams, there are lots of factors to consider when relocating from the UK.

If you’re serious about retiring abroad, it’s important to research and understand the effect this can have on your finances before you make the move. The most common income streams for those reaching retirement are from their UK state pension and workplace or personal pension schemes. Those who have built up a property portfolio will likely generate a suitable income from rent, in addition to their pension. Nevertheless, your pension is crucial to an enjoyable retirement.

UK workplace or personal pension

Any private or workplace pensions that you hold are likely to be more of a lucrative income stream than that of your state pension, so it is important that you consider the best way to manage these schemes to maximise the amount of pension income. In general, you’ll have two options to consider:

1. Leave your pension in the UK and take your money from abroad

You can request early payment of these pensions from 55-years-old, at which age you may be able to withdraw 25% of the value as a lump sum. If you choose to go down this route and take a lump sum to get set up in your new country of residence and use the remaining moneys to provide a pension for your lifetime, is important to consider the impact of currency fluctuations on your income.

If you leave your pension in your UK scheme, it will be paid in pounds sterling and you must then take exchange rates into consideration and be sure that regardless of possible fluctuations, your income will still support the quality of life that you desire, even if your payments drop.

To ensure you get more from your money, shopping around instead of using your bank is definitely a good idea as there are dozens of FCA-authorised specialist companies who can offer you a better deal. Where banks charge you a chunky percentage of the value of your payment, typically, these non-bank providers can charge a fraction of this amount. Specialist online currency company, Eris FX, been helping UK expats transfer tens of thousands of pounds of their pension abroad each year, either monthly or less frequently, when the rates are more favourable.

2. Transfer your pension pot to an alternative scheme abroad

It may be possible to move your UK pension to an overseas arrangement if the plan meets certain conditions and is deemed a ‘Qualifying Recognised Overseas Pension Scheme’.

UK state pensions

Funded by National Insurance Contributions of working UK residents, the UK pension system will pay your state pension into either a bank in the country you’re living in, or a UK bank or building society, pending you have paid enough NI to quality. You can choose to be paid every 4 or 13 weeks, or if under £5/ week, payments will be made once a year in December.

With so many dream destinations worldwide to enjoy in retirement, it is important to consider the culture fit of your expat destination; know what is most important to you, from exploring new territories and meeting new people, to taking your foot off the gas and enjoying a more laid-back way of life and anything in between. Once you’ve set your sights on your new overseas territory, do your research, seek advice on retiring abroad from a financial advisor or your local pensions office, and prepare to take the leap of faith and enjoy your retirement abroad!