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UK state pension worth ‘42% less’ if you retire abroad

Look out for 'reciprocal agreement' with UK

Someone who retired to Canada ten years ago would have received £6,726 – or 42% – less than someone who retired to the US, new research from a leading retirement company has revealed.

If you choose to retire abroad, you could find your state pension frozen at your point of retirement – meaning it won’t be subject to any increases set by the UK government. 

Our guide to Retiring abroad has more details on how the state pension works in other countries.

Retiring abroad and the state pension

Countries that aren’t in the European Economic Area (EEA) or countries that don’t have what’s known as a ‘reciprocal agreement’ with the UK don’t grant state pension increases to people who have retired there.

These countries include Australia, New Zealand, Canada and South Africa – all appealing destinations for retirees looking for better weather and potential cheaper property than the UK. 

The most popular countries for retirees

According to this research, carried out by retirement specialist MGM Advantage, fortunately, the most popular countries amongst UK retirees are ones where you will get your state pension uprated. Spain topped the charts, followed by France, with Cyprus and the USA coming joint fifth.

However, Australia came third, New Zealand eighth and Canada ninth, meaning that a hefty proportion of UK retirees are missing out on thousands of pounds’ worth of state pension, due to the reciprocal agreement not applying in these countries.

What to watch out for if you’re retiring abroad

The better weather and cheaper living costs seem appealing, but it’s worth considering more than the sunshine if you’re considering retiring in another country – and state pension is just one thing to bear in mind.

  • Tax. If some of your tax liability originates in the UK and some in your new country, you may be liable for double tax relief. The UK has a double taxation agreement with some of the most popular countries to retire to, such as France and Spain. However, capital gains tax and inheritance tax may work differently in other countries.
  • Healthcare. Although we have free universal healthcare from the NHS in the UK, this isn’t the case in other countries – so make sure you know what the situation is. In the US and Cyprus, for example, there is no free healthcare, so you’ll need to make your own provisions.
  • Exchange rates. This will affect everything from the cost of living to the value of your pension, so you could try fixing your exchange rate for up to a year. This will stop it from dropping further.
  • Private pension. You’ll probably be hit with transfer charges if you get your pension transferred from a UK bank account to a foreign one. This can be avoided by setting up an international bank account and you can even set the exchange rate by using a currency broker.

Which? would recommend always taking financial advice before a big decision like retiring abroad, because of the complex issues surrounding tax and pensions. Our guide, Financial advice explained, has some information on how to find the best adviser for you.

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