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Retire to the sun

Created:

26 August 2008

Written by:

Mark Robinson

Why anyone should wish to forgo the delights of the Clacton Seafront or morning tailbacks on the M25 is quite beyond me. Maybe it's got something to do with the cost of living, or perhaps Britain's increasingly feisty youth are putting people off retiring in Blighty. Whatever the reason, a growing army of superannuated Brits wants to up pegs and settle in more exotic climes.

According to the Department for Work and Pensions (DWP), one million Britons receive their pension abroad. In addition, the Institute for Public Policy Research expects more than 3.3m British pensioners to join the silver flight by 2050.

One in three UK residents are actively considering a move overseas when they retire, according to research by Scottish Widows. And the wealthier the individual, the more inclined they are to spend their autumn years in absentia; for those respondents earning in excess of £40,000, the percentage wishing to retire abroad nearly doubles.

If you happen to fall into this group, there are still numerous practical considerations, both financial and otherwise, to take on board before you start packing the factor 35.

One of the undoubted benefits resulting from our loss of national sovereignty is the ability to settle (without let or hindrance) in any of the European Union's (EU's) 27 member states. While UK retirees were decamping to various corners of the Mediterranean long before the Maastricht Treaty, the process is now far less problematic.

An increasing number of UK pensioners now choose to join children or other family members living in Commonwealth countries. There has also been a steady trickle to Florida over the past 20 years.

Although it may be more difficult to obtain permanent residency in states outside the EU, it's far from impossible. Quite often, it's just a matter of proving you have sufficient income to sustain your new life, so you won't prove a burden to your adopted state. Circumstances differ, but you may be required to make a substantial financial investment as a guarantee that you can afford to retire abroad.

Once you have decided where to settle, your first move should be to contact the British Consulate in your country of choice, together with the UK embassy of your intended host. Between them, you should be able to find out what administrative details you will need to lodge with local authorities, together with information as to what services are available through reciprocal arrangements with the UK. This point is of particular importance in relation to healthcare provision.

Healthcare provision

Unfortunately, the most common oversight made by those retiring abroad relates to healthcare. It is strongly advised that pensioners find out their welfare rights. It is essential that anyone considering retirement abroad should factor in the cost of adequate healthcare insurance.

Many NHS benefits are not payable outside the UK; others apply only in the EU or in countries that have reciprocal arrangements. In countries outside the EU, British ex-pats will almost certainly have to provide for physiotherapy, dentistry, eye care, prosthetic treatments and costs relating to chronic medical conditions. Even within EU countries you will only receive benefits available to pensioners of the host country, regardless of whether they are available under the NHS. The level of healthcare provision is specific to each country; member states of the EU differ substantially as to what services they will provide free of charge. The health services offered under the state system in France, for instance, are markedly different to those available in Greece or Bulgaria.

Most of the NHS reciprocal healthcare arrangements do not cover long-term disability treatment, certain forms of elective surgery, or prescription drugs. This also applies to the costs of possible repatriation to the UK because of chronic health problems. Also check whether you will pay for ambulance services, as these tend to be extremely costly.

If you decide to retire overseas to a country within the European Economic Area (EEA), you should first apply for an E121 form from the DWP, which will entitle you to healthcare cover from the UK at the same level as a pensioner of the host country. The E121 is only valid once it has been registered with the health service of the country in which you will reside.

For tax purposes, you will also be required to fill out a P85 form so that the tax office knows you're no longer a UK resident.

For details of an independent private medical insurance adviser who can help you find suitable cover, contact the Association of Medical Insurance Intermediaries (www.amii.org.uk).

Disability benefits

If you claim benefits in the UK, you'll normally be entitled to receive these in your new country, as long as it is part of the EEA. If it isn't, you will need to contact the equivalent of the DWP in your new country to ask what benefits you’re entitled to. In certain countries, for instance, you will lose your rights to UK state benefits because they will expect you to be financially solvent as a retired individual.

The situation for some UK pensioners has changed since a ruling by The European Court of Justice last October, allowing certain specific disability benefits to be paid to eligible people who leave the UK to live in another country within the EEA. The decision affects Disability Living Allowance (care component) and Attendance Allowance. The DWP is still considering the legal implications for people who are already living in other EEA countries who feel they are entitled to assistance under the legislation. For details of entitlements under the legislation write to: Exportability Co-ordinator, Room B120D, Pension, Disability and Carers Service, Warbreck House, Warbreck Hill Road, FY2 0YE.

Tax

Don’t automatically assume that once you leave the UK your obligation to the Inland Revenue retires with you. The taxman will take a different view if you make a habit of spending too much time back in Britain, even for seemingly innocent family visits. If, for instance, you spend an average of 91 days a year in the UK over a period of four years, you will be asked to explain yourself. Likewise, if you spend more than 182 days in any one calendar year, the authorities will want to know why. If you own a property in the UK that you use when you return for a visit, you will usually be classified as a UK resident regardless of the length of stay.

Pensions

You will only receive the yearly index-linked pension increases if you live in the EEA, or in a country with which the UK has a reciprocal agreement covering state pensions. British state pensions are not index-linked in the following countries: India, Pakistan, Bangladesh, Malaysia, Australia, Canada, New Zealand, South Africa, Zimbabwe and most other Commonwealth countries. However, most service pensions are increased in line with UK inflation. Some countries have entered into a 'double taxation agreement' with the UK. This means you will not be expected to pay UK tax on your state pension, but it will be taxable in the country in which you live. If you retire to a country without this agreement, you'll have to pay UK tax and may be taxed again at the local rate. Details of tax treaty status can be obtained from HM Revenue & Customs.

Controversial new pension regulations - the Qualifying Recognised Overseas Pensions Scheme - came into force in 2006. The scheme enables retirees to transfer their retirement funds overseas and then convert them into cash after a five-year period, often on a tax-free basis. The Channel Islands are on an approved list of destinations for UK pension transfers, alongside Switzerland, Australia and New Zealand. Anyone with a substantial retirement portfolio would be well advised to consult a tax specialist in relation to the new provisions before the Exchequer decides to amend the legislation.

Inheritance issues

When purchasing property abroad, remember that wills made out in the UK may not cover overseas property. Inheritance laws in many popular destinations differ substantially from the UK. Napoleonic code still holds sway in many corners of Europe and inheritance tax can be punitive. In France and Spain, for instance, there are issues over forced heirship laws, and you may also find yourself open to wealth taxes that apply to non-French and non-Spanish residents with assets above certain values. France imposes inheritance tax rates that run anywhere up to 40 per cent, while Spain imposes a top rate of 68 per cent. Again, recourse to a tax specialist is essential.

To find an independent financial adviser who specialises in advising expatriates visit www.unbiased.co.uk.

Where British Pensioners Would Most Like To Live Overseas

Source: Bank of Scotland

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