Planning for Expat Retirement in Cyprus
If
you’re planning to relocate to enjoy an idyllic coastal lifestyle in Cyprus,
one of the essentials to put on your list is a pension review. Now, we know
that pension planning isn’t always the first thing that crops into your mind
amid property searches and packing. Still, it’s a vital component of a secure
financial future as an expat.
There
are multiple potential routes to claiming pension benefits for expats moving
from the UK to british expats cyprus. The best solutions for you will depend on
the type of pension products you have, when you expect to retire and how you
want to utilise your pension savings – among several other considerations.
We
do not advocate any particular route without knowing your circumstances, the
value of your pension, and what type of plan you have. For bespoke advice and more information about
any options explained here, please contact our local financial adviser cyprus
team or the UK Administration Office.
UK Pension Planning for Expats in
Cyprus
So,
for most expats, there are three main options when it comes to organising your
pension fund:
1.
Leave UK products
as they are and draw your pension from Cyprus.
2.
Transfer your
pension schemes to an overseas alternative.
3.
Do something
entirely different, such as draw your pension as a lump sum and invest it
elsewhere.
Regarding
your individual circumstances, there are some important questions, for example
– is your pension defined benefit or defined contribution?
Defined
benefit pensions have the lucrative advantage of a guaranteed income for life.
However, they do have limitations, so you can’t usually draw a lump sum to
purchase your new Cypriot home, for example.
Defined
contribution schemes are more flexible, so it’s up to you whether you want to
receive your pension as a regular payment or draw on a chunk of your pension
pot for other uses. However, they have a finite value, so when the fund is
exhausted, it will close.
In
some scenarios, it might be worth transferring a defined benefit pot into a
defined contribution scheme. Still, it’s worth approaching this decision with
caution. It is, in fact, a regulatory requirement that you seek independent
financial advice before making this move. Sacrificing lifetime benefits is a
risk, so it’s critical you have sound advice before following this strategy.
The
point here really is that there isn’t a one-size-fits-all answer, and planning
for your expat pension demands a tailored approach to ensure the solutions
match your retirement aspirations.
Drawing a UK Pension Scheme from
Cyprus
If
you choose to, you can leave your UK pension funds exactly where they are.
There isn’t any requirement to transfer a scheme, so it’s at your discretion
whether your British retirement funds are left in situ or moved overseas.
But
there are several things we’d consider:
·
Pension Fund Exchange Rate Risks
Drawing
pension income in Cyprus from the UK will, inherently, come with an exchange
rate risk. Your British pension will be paid in GBP, but you’ll have to convert
that to Euros.
Sometimes,
that will be advantageous, and sometimes not – but regardless, you will lose
some of the income with transactional fees required for an international money
transfer.
·
Cyprus Residency Status
If
you live in Cyprus long-term and are a registered resident (with tax-residency
status), you may be in for a happy surprise since tax rates are generous.
However,
if you’re a non-resident, you may still be liable for taxes at the UK rates and
exposed to any changes in personal allowances or tax bands.
·
UK State Pension for Expats in Cyprus
We’ve
briefly explored above the contrasting pros and cons of different scheme types
– although looking at just a fraction of the potential pension structures you
might have.
Another
consideration is the UK State Pension. If you have made the requisite National
Insurance contributions and are entitled to the State Pension, you can still
receive this overseas. However, the value will depend on currency exchange
rates.
Cyprus Pension Income Taxes
As
a Cypriot tax resident, you pay income tax at local rates – unless you receive
a Civil Service pension, which is taxed at source in the UK. That is to your
benefit since financial advisers in cyprus is 25% more affordable in living costs and
offers low tax rates on pension income.
You
have two choices:
1.
Opt to pay tax at
5% of your pension, against anything above €3,420.
2.
Choose to pay
taxes against the regular income tax bands.
The
first band starts at an annual revenue of €19,500 – so if your yearly pension
is below this, you’d be better off with option two and would pay zero tax.
The
benefits of Cypriot taxation mean that many UK expats opt to apply for official
residency status or ensure their living arrangements meet the 183 days plus
requirement to be treated as a tax resident.
Transferring a UK Pension Fund to
Cyprus
Another
potential solution is to look into a pension transfer. You can usually only do
so if the scheme is recognised on the HMRC List of Recognised Overseas Pension
Schemes (ROPS).
Note
that there are currently no ROPS on the HMRC register in Cyprus – but that
doesn’t mean you can’t select another fund in a neighbouring EU country, with
many such schemes based in Malta.
ROPS
transfers can offer substantial advantages, making them an appealing option
with tax efficiencies and flexibility that you won’t get if you leave your UK
pension as-is:
·
Options to
combine multiple pensions into one ROPS plan.
·
Protection from
UK taxes and changes to any pension regulations.
·
Flexibility to
choose how you invest and access your pension pot.
·
Improved
succession planning benefits.
·
Ability to invest
and draw your pension in multiple currencies.
The
significant factor in looking at a ROPS is that you may be liable to taxes on
the value transferred. A lot depends on whether that tax burden is likely to be
much lower than you’d pay against your UK pension income.
Taxes
can include:
·
HMRC Lifetime
Allowance 25% taxes on anything over the £1,073,100 cap.
·
An Overseas
Transfer Charge of 25% against any pension fund transfers.
The
Overseas Transfer Charge is slightly ambiguous since, technically, HMRC can
apply it to EU pension transfers post-Brexit. HMRC hasn’t confirmed this, but
it’s essential to be aware of the potential.
Planning for Expat Retirement with
Confidence
As
we’ve seen, there are variable pros and cons, risks and rewards. You must have
expert financial advice before making any long-term decisions about managing
your UK pension from Cyprus.
Whether
you have a sizeable pension fund and wish to protect the value of your
retirement savings or want to explore the potential returns on alternative
investment products, it remains vital to seek expert guidance.
Contact
our Limassol Office for access to on-the-ground expertise and arrange a good
time to chat with one of the Chase Buchanan team. We provide a wholly bespoke,
individual, and holistic wealth management service, making professional
recommendations about the ideal pension solutions to secure your happy
retirement.
Original Source: - https://chasebuchanan.com/expat-retirement-in-cyprus/
Comments
Post a Comment