Brits retiring aboard may dream of a place in the sun, but Shangri-La may be nearer to home according to Which? Money analysis. Ireland offers a combination of pension rises, medical care and easy access to the UK that could perhaps tip the balance over more exotic spots.
Retiring abroad: the practical considerations
In assessing a range of popular retirement destinations, we looked at a number of practical considerations for those retiring overseas. These ranged from domestic tax rates and the availability of a state medical system, to the simplicity (or complexity) of arrangements for receiving the UK state pension.
More personal factors that those retiring might want to consider, which our experts also looked at, included the ease of access to the UK. This is particularly important for those retiring overseas if they have family they may want to visit frequently.
In addition, we looked into visa requirements for those relocating overseas, and how widely-spoken English is in the countries we rated.
Getting the UK state pension overseas
Although those who qualify for UK state pension are entitled to receive it wherever they chose to retire, not all countries have reciprocal arrangements that mean it is automatically increased each year. While state pension in the UK is normally ‘uprated’ annually to keep pace with inflation, this is only extended to those who live in a prescribed list of overseas territories.
Popular retirement destinations such as Australia, New Zealand, Canada and South Africa are excluded from this – and state pension here remains frozen at the level it was at when you first began to receive it.
This means that a man who was 65 in 1990, and retired to one of these countries on a full state pension of £46.90, would still only be receiving the same weekly sum 20 years later. In France, Spain or the United States of America, he would now get the same as pensioners in the UK, £102.15 (2011-12) – which amounts to £55.25 more.
Income tax and retiring overseas
If you move abroad permanently, your income is normally taxed in the country you move to, rather than in the UK. Ireland doesn’t score particularly well on the tax front, with a top tax rate of 41%.
Few retirement destinations are ‘low tax’ havens, although the US, Canada and New Zealand have a lower top rate of tax than the UK.
The most notable tax concession available to retired people is in Cyprus, where pensioners can opt to pay just 5% tax on their pension income.
Inheritance tax issues
In the UK, Inheritance tax (IHT) is charged on estates worth over £325,000 at 40%. IHT thresholds and the rate charged vary around the world.
In the US, the tax is only levied on estates worth over $5m, while in France and Spain the level of exemption and the rate charged depends on who the beneficiaries are.
Transfers to married/civil partners are tax-free, while children have a higher allowance than unrelated beneficiaries.
This is also the case in Ireland. There, the IHT tax rate is just 25% but the threshold is much lower for unrelated beneficiaries (16,604 euros) than it is for children of the deceased (332,084 euros).
In the UK we are used to a universal health service, free of charge at the point of need. Not all retirement destinations are so generous in terms of the free medical care they offer – and several, such as the USA and South Africa, private medical insurance is essential.
Those who relocate after reaching state retirement age are entitled to receive medical care at greatly reduced cost in France, Spain and Italy, but they may still be required to pay proportion of charges and may want to consider private insurance to cover these.
In Ireland, the HSE provides a similar service to the UK’s NHS.
Individual choice in retiring abroad
According to figures from the Department for Work and Pensions, Ireland is a popular retirement choice with 113,600 UK state pensioners living there. This contrasts with 96,990 in Spain, 50,000 in France and 36,480 in Italy.
Australia is the most popular retirement destination, however, with 250,440 settling there. Canada is next, with 158,810, while the USA has 136,600.
Which? pensions expert, Ian Robinson, says: ‘Ultimately, there are many reasons why people might choose to retire aboard. Sunshine, cultural interests and family connections may trump any other factors, but those making the move do need to check their pension and healthcare arrangements carefully.
‘They might also benefit from taking specialist advice, particularly if they are considering buying property abroad.’
If you’d like more information on preparing for later life, read the Which? Planning your retirement advice guide.
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