Whiling away retirement in sunnier climes has long appealed to Britons, particularly when the cost of living abroad can mean pension savings go further than here at home.
Migration figures from the United Nations suggest more than a million British people live permanently in Europe, with around 250,000 of those over the age of retirement.
Which? estimates that to live comfortably in retirement takes an income of around £28,000 a year for a two-person household in the UK.
In Spain, the most popular retirement destination for pensioners moving from the UK, the cost of living at the same level of comfort is significantly lower, according to rental platform Housing Anywhere.
Lower housing costs, cheaper energy and utilities in the country mean income goes further, a big help for those who haven’t managed to save enough to maintain their lifestyles after stopping work.
But moving overseas has implications for your finances – from paying tax to claiming state pension, it can be complex to get to grips with.
Tom Selby, head of retirement policy at AJ Bell, says: “When someone chooses to switch jobs or move to a different country, or both, the decision is usually about much more than money and financial security.
“However, your overall remuneration will clearly impact on your lifestyle, so it’s important to carefully consider what you will be giving up and what you will be gaining from your new employer, both in the short-term and the long-term.”
Here’s what you need to know if you’re considering a move abroad.
Every scenario is personal when it comes to moving abroad, which is why getting independent financial advice from a specialist is vital before you commit.
Where you are in your career, the type of pension you have and the rules in the country you’re moving to all weigh on whether your finances will be in better or worse shape after the move.
Valentina Rocchi, a senior international benefits consultant at WTW, says: “The benefits accrued in the UK up to the time of leaving would generally be protected. However, they would have to remain in the plan (or equivalent plan) until retirement age.”
The duration of the transfer abroad is also important, she explains. In some cases if the transfer is for a short period of up to 2 years it may be possible to continue paying into the UK system.
“Pension regulation is complex and subject to change, so the recommendation would always be to do your due diligence and be prepared that regulations might change,” adds Ms Rocchi.
If you have saved into a workplace pension or self-invested personal pension you can leave it with your existing UK provider even if you become resident in another country.
Not all providers will make payments to a bank account held outside of the UK however, and those that do often impose hefty fees.
Receiving payments into a UK bank account is generally the most cost-effective way to claim your pension, in spite of transfer fees if you opt to move your savings to a local bank account.
There is also exchange rates to factor in when changing your pounds into the local currency. It’s worth looking into cheaper services specifically designed to keep costs down for those changing money regularly.
Claiming state pension when abroad
You can claim and receive a UK state pension while living overseas but pension credit stops when you move overseas permanently. This is a means-tested benefit, which can top up your weekly income.
When you move, you need to notify the International Pension Centre. If you’re from Northern Ireland, you need to notify the Northern Ireland Pension Centre.
You also need to contact HMRC to make sure you pay the right amount of tax.
Your state pension can be paid to a UK bank or building society account, or to an overseas account in the local currency but you’ll need the international bank account number and bank identification code numbers if you have an overseas account.
You’ll be paid in the local currency, again exposing your income to fluctuating exchange rates.
Just as in the UK, you can choose to delay or stop taking your state pension for a time and get extra State Pension.
If you move to a European Economic Area country on or after 1 January 2021, your right to some UK benefits might change.
Should you stay or should you go?
British doctors, nurses, police, teachers and other public sector workers are being offered salaries up to three times their current incomes if they move to Australia.
Last month a delegation of officials from Western Australia came to the UK promising key workers a better work life balance, a lower cost of living and 3,200 hours of sunshine a year.
Amid an ongoing row over fair pay and regular strikes, the financial appeal of such an offer is clear.
But given the generosity of public sector pensions is the upside in annual income worth giving up a guaranteed income later in life?
Tom Selby, head of retirement policy at AJ Bell, says: “The most obvious thing to look at will be the salary of your prospective new job.
“But for many workers – and particularly NHS staff – their extremely generous defined benefit pension scheme will need to be a central part of the consideration.”
Defined benefit pensions, once a mainstay across both the public and private sectors, are now virtually extinct for anyone working for a company in the UK.
Those paid by the state however are still honoured. Since 2015, NHS scheme members have benefitted from a ‘career average’ DB scheme, with each year of membership entitling the worker to 1/54th of their career average salary.
“That is a hugely valuable benefit, potentially worth hundreds of thousands of pounds, which needs to be factored in when comparing your remuneration in the UK with any package you are offered in another country,” warns Mr Selby.
“NHS pensions are notoriously complex and there value will be different for different people, so taking professional, regulated financial advice to understand your options is essential.”
While moving to Australia may sound appealing, Alice Guy, head of pensions and savings at interactive investor, says it’s a complex financial decision.
“Your pay is only one small part of your finances: you also need to consider your pension and any extra costs living abroad,” she says.
“Despite recent changes in the UK the NHS pension is extremely generous and as a defined benefit scheme, you’ll receive a guaranteed income in retirement, based on your salary and how long you’ve paid in.”
By contrast, doctors in Australia are part of a much less generous superannuation scheme, where the employer contributes at least 9.5 per cent to a pension pot.
“Check your potential contract for details,” says Ms Guy. “If you’re thinking of transferring your NHS pension to an overseas pension scheme, then it’s important to take financial advice as you could lose out in the long run.”
In spite of promises to the contrary from Western Australia’s police and defence industry minister Paul Papalia that “our wages are higher and our cost of living lower” that’s up for debate, says Ms Guy.
“The cost of living is generally more expensive in Australia,” she warns. “Housing costs are eye wateringly steep, especially in Sydney, and groceries also cost a lot more than in the UK.”
Australians also pay for their healthcare through an extra tax called a medicare levy.
Britons who choose stay in Australia after retiring could also end up out of pocket when it comes to the state pension.
Though anyone who has worked in the UK and paid national insurance contributions is entitled to claim the state pension, those living abroad in some countries will have their payments frozen rather than seeing them rise in line with inflation as in Britain.