How do you save for retirement in Spain and what are the best options for expats?
These days there are quite a few choices on how to receive your pension as a British expat and, if you qualify for a UK state pension, you can claim it no matter where you live. The money can be paid into a UK bank or directly into an overseas account in the local currency. If you move to Spain before retirement and work there for a number of years, it may also be possible to receive a state pension from more than one country.
If you’ve qualified for a state pension from the UK, it will be paid (and taxed) in Spain but uprated every year in the same way as the UK. The personal tax allowance in Spain is €6,069 (£4,923) compared with £10,000 in the UK. The basic rate of tax is also higher, at around 24% compared to 20% in the UK. And in Spain there is no 25% tax free lump sum available when retiring, and any Isa’s you have in the UK will be liable for tax if you become resident in Spain.
A lot to consider…
Saving for Retirement: Tips
Plan Ahead: Pay off debts and take advantage of tax free personal allowances.
Do Your Homework: Before sitting down with an independent financial adviser, make sure you have a clear picture of your current finances and what you need to consider in order to achieve the lifestyle you want over the years ahead.
Consider Your Saving Options: The recent Budget announced radical changes to pension schemes – good news for savers. From April 2015, individuals may withdraw as much or as little from their pension fund in any year with 25 per cent being withdrawn free of tax.
Regularly Review Investment and Retirement Plans: Review your investment and retirement plans every six months to ensure any advice received is up to date and relevant.
Prudential: Flexible Savings for Retirement
The Prudential Flexible Retirement Plan gives access to a range of flexible retirement and investment solutions to suit your changing needs and priorities. Whether you are approaching retirement or some way off, the flexibility provides an easy transition from saving for retirement, through to approaching retirement and then taking an income.
Professional Advice for Expats
The earlier you get your financial planning in order, the better. Make a mistake with your pension, and you could end up paying for it for the rest of your life.
A pensions expert will be able to point you in the right direction. You will need to take Spanish rules into consideration, so taking advice from an adviser conversant with both UK and Spanish pension and tax rules is essential.
The number of British people moving abroad is rising, with about one in 10 British people now living overseas.
Despite its obvious economic difficulties, Spain continues to be one of the most popular destinations for British expatriates, as the laid-back lifestyle and improved transport links with the UK gives it an allure that is hard to resist.
However, setting up residence in a Spanish city, such as Barcelona, involves a great deal of upheaval, both on a personal and practical level, and it’s a sad reality that expats can be particularly vulnerable to poor financial advice.
How to Choose a Financial Adviser
In practical terms, one of the most important things to get right as an expat is your finances, and having the right banking arrangements is a fundamental part of life overseas. Banking services should ideally meet at least two main criteria: flexibility (money should be easy to access and transfer between countries); and financial security (in a reputable bank that complies with international financial regulations and has a solid capital base).
But what other factors should you take into consideration when searching for a Financial Adviser in Barcelona?
Are they regulated? Do your research, visit websites, and confirm registration with the IFA before choosing an adviser.
Qualifications: Every nation has different rules relating to how qualified a financial adviser needs to be to gain authorisation, but the UK is a world leader in terms of required qualifications. So if you’re speaking to a British adviser abroad, you can gauge their industry education based on the British qualifications they have.
Experience: You can ask your adviser how long they’ve been qualified and giving advice, and you can research the brokerage to see how long they’ve been in business.
Are they independent? Ensure that your adviser is independent rather than tied to one financial institution, so that they are able to advise you on suitable products from the entire financial market place.
Testimonials: If your IFA is good at their job, they are highly likely to have a list of satisfied clients, from whom you can request a testimonial.
The Spectrum IFA Group
At The Spectrum IFA Group, we provide financial advice to expats on all aspects of living, moving and working in Spain. From calculating the cost of living to choosing a good school for your children, our guides to money management and family finances will help you prepare for the challenges of living and working abroad – so you can make the most of your expat experience.
We provide Insurance Intermediation advice and assist clients in their choice of Investment Management Institution. Mutual respect is earned by working together, looking after your best interests and by adding value to your financial planning through qualifications, experience and enthusiasm.
The rapidly changing landscape of pension schemes in the UK has led to a great deal of confusion, and it’s not just UK pensioners who are affected: the rule changes also impact expats living outside the UK, especially those considering the benefits of a Qualifying Recognised Overseas Pension Scheme.
As an expat, it’s hard to know which route to take. Should you transfer to a QROPS or leave your pension in the UK? What are the benefits and drawbacks? What impact have recent changes had on your options?
Let’s look at the facts…
Reasons to transfer
● Pension Commencement Lump Sum of 30% of the fund. This is tax-free if UK resident but could be taxable if resident outside of the UK.
● No pension death tax, regardless of age, in Gibraltar and Malta
● Greater investment freedom, including a choice of currencies
● Retirement from age 50 (Malta), and 55 in Gibraltar and Isle of Man
● Income paid gross from Malta (with an effective DTT), and only 2.5% withholding tax in Gibraltar
● Removal of assets from the UK may help in establishing a Domicile outside of the UK (influences UK inheritance tax liability)
What will happen if you leave your personal pension in the UK
● On death over the age of 75, a tax of 45% on a lump sum pay-out.
● Income tax to be paid when receiving the pension, with up to 45% tax due, likely deducted at source,
● Registration with HMRC and the assignment of a tax code.
● Proposed removal of personal income pension allowance for non-residents. Although this is still on the agenda, it has been confirmed that there will be no change to non-residents’ entitlement to personal allowance until at least April 2017.
● Any amounts withdrawn will be moved into the client’s estate for IHT purposes, if this is retained and not spent.
● As the client will be able to have access to the funds as a lump sum, these could potentially be included as an asset for care home fees/bankruptcy etc.
● No opportunity to transfer from many Civil Service pension schemes from April 2015 (Only five months remain for public sector workers to review their pension and then make their own informed decision)
What Does All This Mean?
Regardless of the proposed legislation amendments, transferring to a QROPS still provides certain benefits that the UK equivalent would not be able to offer, although it’s fair to say that both still hold a valid place in expatriate financial planning. The answer to which pension is more suitable for you will ultimately depend on your individual circumstances and long term intentions.
Spectrum sponsor the Barcelona English Radio Party – 20th November
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