Financial Planning for Retirement When Relocating Both Short and Long-Term
Whether you are moving overseas
permanently, taking up a new job post for a couple of years, or hedging your
bets before you make any decisions about where you’d like to settle down with
your family, your retirement plans
should always be an important consideration.
Although financial planning for
retirement might seem years away, or you may assume there isn’t anything you
need to do immediately to protect your pension wealth, proactive pension
management can make a significant difference to your future finances.
UK nationals who live in another
country for any period of time should evaluate how this may impact their
eligibility for the State Pension, how they intend to make contributions to
private or workplace pensions from abroad, and how best to manage pension
products – we’ll run through some of the primary reasons this is worthwhile.
Managing State Pension Entitlement During an International Move
British expats are entitled to the
State Pension regardless of where they live, provided they have made enough
National Insurance (NI) contributions during their working lives. In some
countries, the amount payable may be fixed at the date of your relocation,
although in other jurisdictions, you may benefit from the annual increase
calculated against the ‘triple lock’.
A common challenge is that anybody
who has lived abroad, even if for a short period, could find that their NI
contributions have a shortfall – impacting their eligibility to claim the State
Pension. Disregarding this potential problem may mean you have limited
opportunities in the future to pay shortfalls and secure this income stream.
The best strategy is to request a
State Pension statement to see how gaps in NI contributions have affected your
eligibility. However, the sooner, the better because if you have a large
shortfall stretching over a few years, it may be more feasible to make this up
in stages rather than as a lump-sum payment.
Partial years can also be ‘upgraded’ to full years
with minimal contributions, often beginning at £15, which is an easy and
low-cost way to avoid losing out on the State Pension, currently worth £10,600
per year.
The State Pension is always remitted
in GBP, so you may wish to think about how exchange rates will affect the value
or decide whether to retain a UK bank account if there is the potential you
will split your time between locations.
We have previously looked at Expat Retirement
Planning and examined why this level of planning is important, regardless
of your age now or when and where you intend to retire.
Dealing With Workplace Pensions When Living Overseas
If you are relocating long-term, you
may have clearer options in terms of deciding what to do with a defined benefit
or defined contribution pension scheme if there is a certainty you won’t be
returning to the UK or won’t be making any further contributions to the fund.
Otherwise, the right way to proceed
could depend on the terms and policies attached to the scheme, whether you can
access your pension fund from abroad, and how this would affect your tax
liabilities both in Britain and your overseas home.
Most personal and workplace pension
products are accessible from any location, although you may not be able to draw
on the fund until you reach the minimal claimant age, and other conditions may
apply. For expats living overseas permanently, a pension transfer is often the
optimal solution – but that isn’t always the best financial solution.
Transferring UK Pension Schemes Overseas
A defined contribution scheme could
be transferred to an overseas pension fund, reinvested in a UK-based privately
managed pension, or invested in a different product without necessarily
impacting the gross value saved and offering options to structure your
retirement savings efficiently.
Defined benefit schemes are more
complex as moving your funds could remove your right to a fixed income for life
or of a minimum value on retirement. Our advice is always to consult with an
experienced financial adviser who will evaluate your circumstances and the
pension products you currently hold. They will create a tailored strategy to
indicate the available options and which will be most advantageous.
Ignoring the issue, or assuming that
you do not need to take action because you may return to the UK, could be a bad
move. One example relates to the Lifetime Allowance (LTA), a recently abolished
limit on the amount of pension wealth you can save in the UK without being
exposed to additional taxation.
If you were to move this year and
transfer your pension, you would remove any exposure to this tax being
reinstated – a likelihood this may happen if there is a change of governing
party changes at the next general election. Failing to act could mean you miss
a potentially short-term opportunity to significantly reduce the tax exposure
linked with a higher-value pension.
Tax Rules for Expats Drawing on a UK Pension Fund
Further considerations apply to
financial products such as ISAs, tax rules in your overseas destination, and
investment products which may make up part of your pension planning portfolio.
ISAs are tax-efficient products for UK savers, but expats living abroad are not
permitted to make any contributions, which could mean an alternative savings
option is more appropriate.
A similar analysis should be
conducted to decide how best to manage any other products, savings, investments
or assets since they may not be accessible from another country or may lose
value if you relocate – due to cessations in contributions, the risk of
currency exchange rates, or rules on drawing funds from abroad.
The tax rules in your country of
residence will also influence the viability of your pension planning, where
some countries offer attractive flat-rate taxes for expats against
foreign-sourced pension income. Others may include pension benefits in income
tax calculations, which may impact the most beneficial way to proceed.
In any circumstance, the key takeaway
is that financial planning for retirement is important for every expat, at
every stage of a move, and whether you expect to live overseas temporarily or
want to build a new life in your dream destination.
Please get in touch with your nearest
Chase Buchanan Wealth Management team for more information about anything
discussed in this guide or to arrange a convenient time to consult on your
pension plans.
Original Source: - https://chasebuchanan.com/financial-planning-for-retirement-relocating/
Comments
Post a Comment