☏ +34 93 665 85 96  |  ✑ info@spectrum-ifa.com
Viewing posts categorised under: Pensions

Your Expat Guide to Pension Planning

By Michael Doyle - Topics: France, Luxembourg, pension transfer, Pensions, QROPS, UK Pensions
This article is published on: 4th March 2021

04.03.21

Are you planning on retiring in France or Luxembourg but have a pension in the UK?

Look no further than this article as we guide you through your options. Pensions are a pinnacle part of your retirement plan but can be a complex topic for British expatriates with rules frequently changing, so always consult with your financial adviser when deciding which plan best suits your needs.

First off, you can leave your pension as is in your existing UK pension scheme if you want. However, with the Brexit decision, you should check with your UK financial adviser and make sure they can still support you. If you want to move your funds to an international pension plan, then your best options may be opening a QROPS or SIPP account.

QROPS (Qualified Recognized Overseas Pension Scheme) allows foreign nationals who have worked in Britain to transfer their UK pensions overseas.

  • Expatriates can avoid various restrictions imposed by the UK when taking retirement benefits
  • HMRC allows individuals to access 100% their pension fund after the age of 55. However, it may not be advisable to do so as it can result in higher taxes on withdrawals. It is potentially better to draw the funds periodically in a more tax-efficient manner
  • There’s no compulsory annuity purchase
  • Reduction in currency risk because QROPS allows you to invest and take benefits in a currency of your choice
  • QROPS gives you more freedom to select a portfolio suited to your needs because it offers a more extensive range of investment options

SIPP (International Self-Invested Personal Pension) enables someone access to greater investment choices because it is a personal pension plan based on making your own decisions. However, the pension structure is based in the UK so it’s subject to any legislative changes made by the UK government.

Benefits include, but are not limited to:

  • An international SIPP can provide a regular or variable income
  • No obligation to purchase an annuity
  • They provide greater flexibility regarding investments, tax benefits, and currency choices
  • Ideal way to consolidate various personal pensions, which reduces administrative complications
  • If you plan on moving back to the UK this option may be most suitable for you
moving-to-france
moving-to-luxembourg

You can also try a combination between both UK and international pension plans. The main objective is to arrange your retirement in a manner where you can access your finances when you want, where you want, and in the currency of your choice. Overall, there are many things to consider when choosing your pension plan, so be sure to do your research and understand your different options before making any decisions.

It is in your best interest to act now when planning your pension scheme, so touch base with your financial adviser today to discuss your options.

Claiming your UK State Pension whilst living in Spain/EEA

By Chris Burke - Topics: Pensions, Spain, UK Pensions
This article is published on: 16th February 2021

16.02.21

Perhaps the most common questions I have been receiving since Brexit was agreed are in respect of UK State Pensions, particularly how it will work moving forward having contributed to the UK social security pension system:

  • What is my entitlement and how will UK nationals be able to claim their state pensions moving forward after Brexit?
  • What age can I start claiming (different EU countries have different age limits)?
  • How are these state pension calculations achieved?

Well, this should give you some clarity
First things first, to receive a Spanish state pension, you need at least 15 contributing years (combined years from any EU country) to be entitled to a minimum pension which will amount to 50% of the ´base reguladora´ (for Autonomos) or minimum state pension for employees, based on your past wages. At least 2 contributing years need to be within the period of 15 years leading up to your legal pension age. If you do not qualify for this, you should go directly to each country you have contributed to previously and see if you qualify from them.

Before the UK joined the EU, you would claim your state pensions from each country individually. Once we joined the EU and if you lived and contributed social security payments there, you would contact the relevant department of the country you were residing in i.e. worked and paid taxes in that country. They would then claim ALL your state pensions throughout the EU system. Under the Withdrawal Agreement for Brexit, this system has remained in place for both existing and new residents:

final salary pension review

‘The EU-UK Trade and Co-operation Agreement announced on 24 December 2020 includes a protocol on social security co-ordination. UK government guidance on the rights of UK nationals in the EU, EEA or Switzerland to UK benefits and pensions from 1 January 2021, states:

UK State Pension
You can carry on receiving your UK State Pension if you move to live in the EU, EEA or Switzerland and you can still claim your UK State Pension from these countries.
Your UK State Pension will be increased each year in the EU in line with the rate paid in the UK.

You can also count relevant social security contributions made in EU countries to meet the qualifying conditions for a UK State Pension.

This guidance is for UK nationals; however these rules on the State Pension apply to everyone regardless of your nationality and regardless of when you moved. (Gov.UK Benefits and pensions for UK nationals in the EEA and Switzerland, 24 December 2020).
(source – house of commons library)

Never worked in Spain or paid social security there?
You claim directly from the UK here www.gov.uk/state-pension-if-you-retire-abroad

retire

Differences in retirement ages
In some EU countries, you will have to wait longer to start drawing your pension than in others.

You can only receive your pension from the country where you now live (or last worked) once you have reached the legal retirement age in that country. If you have accumulated pension rights in other countries, you will only receive those parts of your pension once you have reached the legal retirement age in those countries.

So, it’s important to find out in advance, from all the countries where you have worked, what your situation will be if you change the date on which you start receiving your pension.
If you take one pension earlier than the other, it might affect the amounts you receive.

You can get more advice from the relevant authority in the country where you live and/or in the countries where you worked. Find out about the retirement ages and pension systems in the different EU countries you have contributed.

What age can you start claiming the state pension in Spain?
Currently 66 years, increasing by 1 & ½ months per year, until it reaches 67 in 2027.
(source trading economics)

How many years do I need to contribute for a full Spanish state pension?
36 years in general (35 for most people in the UK)

How is your state pension calculated?
Pension authorities in each EU country you’ve worked in will look at the contributions you’ve paid into their system, how much you’ve paid in other countries, and for how long you’ve worked in different countries.

The EU-equivalent rate
Each pension authority will calculate the part of the pension it should pay taking into account periods completed in all EU countries.

To do so, it will add together the periods you completed in all EU countries and work out how much pension you would get had you contributed into its own scheme over the entire time (called the theoretical amount).

This amount will then be adjusted to reflect the actual time you were covered in that country (called the pro-rata benefit).

The national rate
If you meet the conditions for entitlement to a national pension irrespective of any periods completed in other countries, the pension authority will also calculate the national pension (known as an independent benefit).

Pensions health check

Result
The national authority will then compare the pro-rata benefit and the independent benefit; you will receive whichever is higher from that EU country.

Each country’s decision on your claim will be explained in a special note you will receive, the P1 form.

See the below example of how this would work:
Dalila worked for 20 years in France and 10 years in Spain.
Both countries apply a minimum period of 15 years of work in order to have the right to a pension. Each country will calculate Dalila’s pension:
The French authority will make a double calculation:
• It will calculate Dalila’s national pension for the 20 years worked in France – let’s say EUR 800.
• It will also calculate a theoretical amount, the pension Dalila would have had if she had worked the full 30 years in France – let’s say EUR 1 500. Then, it will determine the pro-rata pension, which is the part of this amount that should be paid for the years worked in France: 1 500×20 years in France/30 years in total= EUR 1 000.

Dalila is entitled to the higher amount — EUR 1 000 a month.

The Spanish authority will not calculate the national pension because Dalila has worked in Spain less than the minimum period required. It will only calculate the EU-equivalent rate starting with the theoretical amount, the pension Dalila would have had if she had worked all the 30 years in Spain – let’s say EUR 1 200.

Then, it will determine the pro-rata pension – the part of this amount which should be paid for the years worked in Spain: 1200×10 years in Spain/30 years in total= EUR 400.
In the end, Dalila will receive a pension of EUR 1 400.
(source – Europa.eu – official website of the European Union)

State Pensions After BREXIT

Here is the official UK government wording on the continuation of Social Security Coordination between the UK & EU from Brexit:
“The provisions in the Protocol on Social Security Coordination will ensure that individuals who move between the UK and the EU in the future will have their social security position in respect of certain important benefits protected.

Individuals will be able to have access to a range of social security benefits, including reciprocal healthcare cover and an uprated state pension.

Article 114. This Protocol supports business and trade by ensuring that cross border workers and their employers are only liable to pay social security contributions in one state at a time. Generally, this will be in the country where work is undertaken, irrespective of whether the worker resides within the EU or the UK, or indeed whether the employer is based in the EU or the UK.

Article 115. UK workers who are sent by their employer to work temporarily in an EU Member State which has agreed to apply the “detached worker” rules will remain liable to only pay social security contributions in the UK for the period of work in that EU Member State. Similarly, if an EU worker is sent by their employer to work temporarily in the UK from a Member State which has agreed to apply the “detached worker” rules, they will remain liable to only pay contributions in that EU Member State.

116. Under the Protocol, the UK and EU Member States will be able to take into account relevant contributions paid into each other’s social security systems, or relevant periods of work or residence, by individuals for determining entitlement to a state pension and to a range of benefits. This will provide a good level of protection for people working in the UK and EU Member States. The Protocol also provides for the uprating of the UK State Pension paid to pensioners who retire to the EU.

117. On healthcare, where the UK or an EU Member State is responsible for the healthcare of an individual, they will be entitled to reciprocal healthcare cover. This includes certain categories of cross-border workers and state pensioners who retire to the UK or to the EU.

118. In addition, the Protocol will ensure necessary healthcare provisions – akin to those provided by the European Health Insurance Card (EHIC) scheme – continue. This means individuals who are temporarily staying in another country, for example a UK national who is in an EU Member State for a holiday, will have their necessary healthcare needs met for the period of their stay. 119. The Protocol also protects the ability of individuals to seek authorisation to receive planned medical treatment in the

(source – UK government summary annex – UK-EU TRADE AND COOPERATION AGREEMENT Summary December 2020)

If you would like help talking this through, or making sure your financial assets are tax efficient, working for you in a safe manner adapting to the world as it changes, don’t hesitate to get in touch.

Financial and Retirement Planning – Cash flow Modelling

By Chris Burke - Topics: Cash Flow Planning, Financial Planning, Pensions, Saving, Spain
This article is published on: 2nd February 2021

02.02.21

Many people seek financial advice, or financial planning, but if you asked them what they would like to get out of it, most people would probably say clarity on their finances, planning how to make their monies work and to have what they need in retirement, or partial retirement. Only 45% of people in Spain save into private pensions, and now with the government reducing the amount you can save that way tax efficiently, retirement planning is even more important.

Most financial advisers will look at your assets, see what you are doing, talk through why, then recommend a product to improve what you are doing. There is nothing wrong with that, in fact that is part of what we do, however this isn’t really giving people what they hoped to get out of the meetings/talks.

A key part of helping people with their finances, as well as making their monies work, is real life planning of what they have now, what their goals are and showing them how to get there. People take in and understand much more visually, as most of us know; in fact 65% of us are visual learners. That’s why it’s important that when planning your finances you consider using a visual modelling system that shows your monies, what they are doing, future monies potentially coming in, and if you save ‘X’ amount into a pension/property/investment this will be the outcome. For example, which of the below would you prefer to see as your advice?

‘We recommend you place your €50,000 with ‘X’ company, and over the years achieving ‘X’ % return. Also, save ‘X’ a month in a savings program and both of these at retirement will give you ‘X’

OR TRY THIS…

Cash Flow Chris Burke
Cash Flow Chris Burke

What it really comes down to is the expertise of the planning, the knowledge of the financial adviser with whom you are working, and how much is actually put into planning your finances, rather than just making what monies you have work.

This is just one example why I/we at Spectrum stand out as excellent professional financial advisers and planners, if you would like to seriously start planning your retirement and investments or review what you are doing now, don’t hesitate to get in touch, or sign up to my Newsletter below to keep well informed.

Chris Burke newsletter

UK pension consolidation living in Spain

By Chris Burke - Topics: pension transfer, Pensions, Spain, UK Pensions
This article is published on: 1st February 2021

01.02.21

Now more than ever, with the UK leaving the EU, if you have a UK pension/pensions you will need to make sure that they are being properly looked after and managed. This needs to be by someone who can legally practice in the country where you are tax resident. Many UK pension companies are no longer able to give advice to those living outside of the UK, meaning you could have difficulties accessing, managing and securing your pension moving forward. A local adviser also has the advantage of knowing the local regulations, so is able to make sure you are adhering to the rules in addition to being as tax efficient as possible.

When people approach me to speak about their UK private or company pensions, they usually are not clear on:

    • What they are invested in, and whether the strategy is appropriate given the stage of life they are at now
    • How investment decisions are made, who makes them and when
    • The costs of management, what they are and are they efficient
    • How to access the pensions, particularly doing it tax efficiently living in Spain
    • How to consolidate multiple pensions, reducing costs and creating greater annual gains

When I ask most people what their pensions are invested in, what the annual returns are and when they last reviewed this, they usually don’t know or can’t remember. One of the reasons for this is that being outside of the UK makes all this all the more difficult to manage, and even more so now after Brexit.

Or, if they do know the answer to my questions, they have now found they cannot receive any advice from UK pension companies or UK based financial advisers moving forward.

final salary pension review

Consider consolidating several pension pots

If you have several different pension pots, there are potential advantages if you consolidate them into one. These include:

  • Simplification of administration and keeping track of your pensions
  • Managing your pension savings more easily and effectively, including potential tax liabilities knowing local, Spanish rules
  • Saving money if you can transfer from higher-cost schemes to a lower-cost one
  • Opening up a greater choice of investments if you are consolidating your pension pots into a flexible scheme

In many cases, the first step would be to locate your pensions and then evaluate what you have, how they work, what your options are and then have these managed effectively.

I help clients consolidate their UK pensions, managing them efficiently and effectively, planning for when they want to access them integrating with their tax situation and lifestyle. We can help you achieve all this, giving ongoing advice and moving forward making sure you access you pension tax efficiently, adapting to your life as it changes along the way.

For example, if you are over 55 years of age and currently on the Beckham Law, did you know you can cash your UK pensions in, potentially paying no tax in the UK, and potentially none in Spain? This is because on the Beckham Law, all ‘non-Spanish’ income is tax exempt (this depends on your personal circumstances) and being a NON-UK resident, you have no tax liabilities there either.

If you would like to discuss your various UK pensions and what your options are, feel free to get in touch.

Spanish private pensions

By Chris Burke - Topics: Pensions, Retire in Spain, Spain
This article is published on: 1st January 2021

01.01.21

Approximately 45% of people living in Spain contribute to a private pension. For someone who is from another Western, perhaps non-Latin country, this would seem remarkably low. Many years ago, in the UK pensions were almost guaranteed as part of an employer package, and a while back it became compulsory for anyone working in a company aged over 22 and earning more than £10,00 a year to contribute to one. But that figure of 45% in Spain could be about to get even lower…..why?

Spain has decided to lower the amount of private pension contributions you will receive tax relief on, from a low €8,000 per year (the UK has an amount you can contribute annually to of £40,000) to a measly €2,000 from 2021 onwards.

I have an open-minded view about pensions; I do not see them as essential, which may seem strange coming from a Financial Adviser. For me, a retirement plan does not need to include or solely be a pension, as long as there is planning in place. The only things I see as good value for the saver with a pension is that employees may contribute into this for you, and the potential tax savings received. I say potential tax savings here, because yes, you may receive tax relief when adding to these pensions, however, more often than not, unless you can mitigate your tax situation, will pay taxes when taking the money out, so more commonly they are a tax deferral system (which is still some kind of potential benefit).

UK pension lump sum

So, if you take away employer contributions, for me private pensions, certainly as an international person living and working away from your country of residence, doesn’t seem all that attractive. If you ever leave that country the pension stays there, under that

country’s rules, and you cannot access this money until age 67 (in Spain) and invariably, in my opinion but seen through clients and performance charts, Spanish private pensions are generally not that good. Look at most Spanish banks’ pension funds and you will find high commissions, too much investment in the Spanish market, and not enough advice.

What should a retirement/pension plan look like? Well, it’s about having a plan/strategy, regularly reviewing and understanding it doesn’t have to be a ‘pension’. It can be property; indeed, one of the reasons private pension contributions are so low in Spain is because culturally they are property lovers, often not just one, but several. These are usually structured within a Spanish company and passed down through the generations, and can be a very attractive investment and also tax efficient. Buying property in Spain is expensive, approximately 13% in Catalunya for example, however if you rent this out as a long-term rental, up to 60% of that annual income is tax exempt.

What this doesn’t give you though is liquidity, so, if there is a property slow down, you could be stuck with that investment unless you want to take a loss on it, or you may have to leave it behind if you move on. It can also be a big hassle, with Okupas (a common problem in Spain of people unlawfully living in your property, and who are very difficult to get rid of, indeed sometimes it can take years to do so and cost a lot of money). Many people working now are almost in a ‘golden generation’ to think about their pension planning. Many of their parents have assets/properties that have grown very well, and will more often than not leave them a considerable amount of money (see my article on inheritance planning for a potential tax problems there!) They seem less worried about their retirement, than perhaps their parents were. Therefore, they don’t necessarily see the benefit of saving money into a pension when they might not need one, with the money being blocked until then and it restricting their current lifestyle.

balanced investments

A more popular and arguably better strategy for someone, perhaps like me for example, living away from my country of birth, is to make my money work by having it invested in a medium term strategy, say 5-10 years, but have more flexibility should I need it, say for school fees, or, in a few years time, buying a property, or anything else my plan entails (maybe even early retirement).

So, build your strategy on a mixture of property, investments and emergency funds where possible, and always review regularly to see which type of these suits you best at any given moment. Some people really don’t want the hassle of having property, so a well managed investment portfolio could be better for you.

I can help with all of this: the planning, helping set up a property investment structure, and organising savings that will be invested and work for you. Alongside this, we can set it up with access to the money should you need it, making sure you have a clear strategy and advice along your journey.

Comment prendre sa retraite à 50 ans?

By Cedric Privat - Topics: Barcelona, Financial Planning, Pensions, Retire in Spain, Retirement, Spain
This article is published on: 30th September 2020

30.09.20

Qui n’a pas rêvé un jour de pouvoir arrêter de travailler avant l’âge légal de la retraite? 50, 40, 30 ans? Et si ce rêve était réalisable?

La question peut faire sourire, surtout si vous résidez comme moi en Espagne à Barcelone, avec un prix de l’immobilier exorbitant et des salaires souvent moins élevés qu’en France.
Pourtant, de plus en plus de personnes y arrivent, alors pourquoi pas vous?

Le Frugalisme :
Le mouvement FIRE (Financial Independance, Retire Early), né aux Etats-Unis dans les années 2000, défend le principe de vivre simplement et de faire fructifier son argent pour pouvoir vivre de ses rentes.
Il s’inscrit dans un mouvement économiste du Frugalisme “Qui se nourrit de peu, qui vit d’une manière simple.” (Larousse)
Pourquoi ne pas s’en inspirer?

Comment?
• Économiser : s’acquitter de toute dette (surtout celle de votre bien immobilier), réduire son train de vie, éliminer les frais superflus, supprimer certains loisirs, épargner davantage dès le 1er du mois.
• Définir un budget : il sera indispensable de bien calculer vos besoins mensuels afin de définir votre patrimoine retraite et ainsi fixer votre objectif.
• Investir : en plus de votre résidence principale vous devrez investir judicieusement l’argent épargné dans des placements financiers, des actions ou de l’immobilier.

Les frugalistes suivent une « règle d’or » dite des 4% : disposer d’un patrimoine au moins 25 fois supérieurs au montant de ses dépenses annuelles. Si elles s’élèvent à 2.000 euros par mois, il faudra par exemple un patrimoine de 600.000 euros, permettant de vivre des 4% de rendement généré.

State pension systems

Quand commencer?
Bien évidemment, le plus tôt possible. Une retraite anticipée deviendra vite un rêve oublié si on débute trop tard, mais tout dépendra également de votre implication à la cause.
Les nouvelles générations se soucient de plus en plus tôt de leur retraite et pour cause; les prévisions des pensions publiques de retraite sont à la baisse et l’âge légal de départ à la retraite ne fait qu’augmenter.
Le frugalisme demandera une forte réduction de vos dépenses, il est souvent accompagné par une conscience écologique afin de se tourner vers un mode de vie décent et responsable.
Nos sociétés capitalistes amènent de plus en plus les individus à se poser des questions sur le rapport qu’ils ont à l’argent et au travail.

Qui peut appliquer cette méthode ?
Bien évidemment, toute retraite anticipée sera plus facilement accessible aux classes moyennes et supérieures. Pour beaucoup, il est déjà suffisamment compliqué de mettre un peu d’argent de côté.
Une recherche Google rapide vous permettra de lire les expériences de nombreux “jeunes retraités” à travers le globe.
Les méthodes divergent, mais la discipline est de rigueur. Certains retournent vivre chez leurs parents quelques années et économisent 70 % de leur salaire, d’autres travaillent pendant 10 ou 15 ans à un rythme à la limite du soutenable, certains vont compter des années chaque centime possible et enfin les plus privilégiés qui reçoivent un salaire confortable vont tout simplement faire plus attention, s’organiser et investir malin.

Cette méthode vous intéresse mais vous vous posez des questions ?

N’hésitez pas à prendre conseil auprès de professionnels à votre écoute.

Le groupe Spectrum à Barcelone vous propose d’effectuer un audit sans frais ni engagement afin de mieux vous organiser dans la préparation de votre retraite, anticipée ou non.

Nous vous aiderons ensuite à comparer et choisir le placement financier le mieux adapté à votre situation et préférence.

Tax break for pensioners moving to Italy

By Andrew Lawford - Topics: Italy, Moving to Italy, Pensions, UK Pensions
This article is published on: 14th August 2020

14.08.20

Anyone like the sound of living in Italy and paying only 7% tax?

Generally speaking, if you are contemplating the move to Italy you will be thinking about many things, but saving on your tax probably isn’t one of them. So let me give you a nice surprise: if you are in the happy situation of being a pensioner considering moving to Italy, 7% tax on your income is possible, subject to a few rules, for the first 10 years of your residency in the bel paese.

This all came about in 2019’s budget and had the aim of encouraging people to move to underpopulated areas of Italy. Initially, the rules were that you had to take up residency in a town with fewer than 20,000 inhabitants in one of the following regions: Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia or Sicily. Subsequently, the criteria were extended to include towns in the regions of Lazio, Le Marche and Umbria that had suffered earthquake damage and which have fewer than 3,000 inhabitants.

Of course, being Italy, something had to be difficult in all of this, and indeed the law makes reference not to a list of towns but instead tells you to look at ISTAT data (ISTAT is the Italian statistical institute) for the population levels on 1st January in the year prior to when you first exercise the option.

Spectrum IFA Survey

Given the difficulty in finding out exactly which towns would be covered by this rule, I delved into the ISTAT data and also dug out the relevant references to earthquake-struck towns with fewer than 3,000 inhabitants in the other regions mentioned above. I have put all of this in an Excel file which gives a list of towns eligible for the

pensioners’ tax break in Italy divided by region and then further by province, so that you have a rough geographical guide as to the areas you could consider moving to Italy.

As I was sifting through the ISTAT data it suddenly dawned on me that if the cut-off is 20,000 inhabitants, then almost the whole of Southern Italy is eligible for this 7% regime, and you can include in that some truly delightful places such as Vieste in the Gargano (Puglia), or even the island of Pantelleria. This is possible because Italy is divided up into municipal areas that sometimes have more feline than human inhabitants. Obviously, if you are looking for raucous nightlife then you are likely to be disappointed by what is on offer, but if, on the other hand, you like the idea of not having too many people around, then you could do worse than the town of Castelverrino in Molise (population 102) or Carapelle Calvisio in Abruzzo (population 85). Perhaps one day you could even become mayor.

Flat Tax Regime

This new flat-tax regime comes amid a move by a number of European countries to attract pensioners to their shores. Portugal offered a period of exemption on income tax for foreigners (the benefits of which they are now reducing) and Greece has recently announced the intention to offer a 7% flat tax on foreign-source income for pensioners (I wonder where they got that idea from?), which is also promised for 10 years. There is some discussion about the fact that the EU is not generally well-disposed towards these preferential tax regimes, which could lead to them being phased out in a relatively short period of time – so for those looking to make the most of them, time could truly be of the essence.

tax in italy

The great thing is that the 7% rule applies not only to your pension income, but can be applied across the board to any foreign-source income and there is also a substantial reduction in the complexity of the tax declarations that must be made. There are further tax-planning opportunities in all of this, because much will depend on whether you are planning on being a short-term or long-term resident of Italy.

As always, the devil is in the detail as far as tax and residency planning is concerned, and the year of transition when you first establish residency in Italy is key to setting yourself up in the most efficient manner.

So if the above sounds interesting, please get in touch and I would be happy to send you the list of eligible towns and discuss how the rules of the regime apply to your situation.

Moving to Spain & UK pension contributions

By John Hayward - Topics: Pensions, Spain, Tax Relief, UK Pensions
This article is published on: 29th May 2020

29.05.20

I am moving to Spain and I want to make UK personal pension contributions
Is this permitted and what are the restrictions?
Will I still receive tax relief?

Providing that you are a relevant UK individual (definitions below) then you can continue pension contributions for up to 5 full tax years after the tax year you leave the UK. This means that, even if you have no UK earnings once you leave the UK, you can continue to pay up to £2,880 a year (currently), with a gross pension credit of £3,600, for 5 full tax years after leaving the UK. There are more details on how you qualify to make contributions in the text below taken from HMRC’s Pensions Tax Manual. Importantly, any contributions must be made to a plan taken out prior to leaving the UK. In other words, you cannot open a new UK pension plan having left the UK.

We have solutions for people who have left the UK but continue to work and wish to fund a retirement plan. We also help clients position their existing pension funds in the most tax efficient way, creating flexibility whilst providing access to investment experts to maximise the benefits you will receive.

Relevant UK individuals and active members*

Section 189 Finance Act 2004
An individual is a relevant UK individual for a tax year if they:

  • have relevant UK earnings chargeable to income tax for that tax year,
  • are resident in the United Kingdom at some time during that tax year,
  • were resident in the UK at some time during the five tax years immediately before the tax year in question and they were also resident in the UK when they joined the pension scheme, or
  • have for that tax year general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003), or
  • is the spouse or civil partner of an individual who has for the tax year general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003)

Relevant UK earnings are explained under Earnings that attract tax relief in the above tax manual.

Tax in Spain and the UK

Members who move overseas
An individual who is a member of a registered pension scheme and is no longer resident in the UK is a relevant UK individual for a tax year if they were resident in the UK both:

  • at some time during the five tax years before that year
  • when the individual became a member of the pension scheme

These individuals may also qualify for tax relief on contributions up to the ‘basic amount’ of £3,600.
*Source UK government

To find out if you qualify and an explanation of all your pension options, including pension transfers, SIPPs, QROPS, and income drawdown, tax treatment of pensions in Spain, and to find out how you could make more from your money, protecting your income streams against inflation and low interest rates, or for any other financial and tax planning information, contact me today at john.hayward@spectrum-ifa.com or call or WhatsApp (+34) 618 204 731.

State Pension Benefits

By John Lansley - Topics: EU Pension Transfer, France, Pensions, Retirement, State Pensions After BREXIT, UK Pensions
This article is published on: 22nd May 2020

22.05.20

If you have moved from one country to another, while it may be comparatively easy to obtain tax advice in order to help you plan your finances, it can be very difficult to find out how your State Retirement Pension will be affected, and this has become more uncertain as a result of Brexit. This article aims to shed some light on the issue

This article aims to shed some light on the issue.

I retired in the UK and moved abroad
Let’s start with something easy – if you have already retired and moved to Spain, France or another EU country, the chances are your only State Pension will be from the UK. With Brexit in mind, as long as you were legally resident in your new home country by the end of 2020, nothing will change, and you will be entitled to the annual pension uplift indefinitely.

Coupled to this is your entitlement to healthcare, in that you will have a form S1 from the UK, which ensures you benefit from full care on an ongoing basis, and which in effect will be paid for by the UK Government.

If you have already left the UK but have not yet reached formal retirement age, as long as you were ‘legal’ in your adopted home before the end of 2020, you will receive the UK State Pension at retirement age and qualify for annual increases. You will also be entitled to a form S1.

Note that, if you have not regularised your situation in your adopted home by the end of 2020, the situation is uncertain, to say the least. You will be entitled to claim the UK State Pension when you reach retirement age, but the uplifts are only due for 3 years and, most importantly, form S1 will not be available.

I left the UK 5 years ago at the age of 55 and have been self-employed in Spain for the last 5 years
Have you been making voluntary contributions to the UK scheme? Are you making contributions in Spain? If you haven’t already done so, obtain a pension forecast from HMRC – use the gov.uk website, sign up for the Government Gateway access service, and check your National Insurance Contribution records, as well as your UK tax records. You’ll have to apply to contribute, using form CF83 attached to the booklet NI38, Social Security Abroad.

You will then be told what pension you can expect at your retirement age, and you can also see how many incomplete contribution years you have. It is generally good advice to continue to make voluntary contributions after leaving the UK (currently £795.60pa), but if you are currently self-employed, you will only have to pay at the Class 2 rate, which is £158.60pa for the current year.

You’ll receive details of how to make up the shortfall, by bank transfer or cheque for past years, and by direct debit for the future if you wish to see payments taken automatically. Importantly, you can also call to obtain advice concerning whether it would be worthwhile doing this, and how additional payments will increase your pension entitlement – it might take a while to get through, especially due to the current Coronavirus lockdown, as it appears they are only dealing with those on the point of retiring, but you should find the staff helpful when you do.

Also, make sure you understand what your Spanish contributions entitle you to and try to obtain a projection of your future pension in Spain. This might prove difficult at present, with offices closed or providing limited services.

defined-benefit-pensions

Having worked in the UK, Italy and now in Spain, I want to claim my State Pension
The first thing to understand is that you should retire formally in the country you are currently living in, unless you haven’t made any pension

contributions there – in which case you apply to the last country in which you contributed.

So, in this case, you approach the Spanish authorities and will have to provide details of all your employment and self-employment history. Spain will then check with each country concerned (the EU-wide scheme ensures this is possible – work history outside the EU means you may have to apply individually to those countries) and will calculate your entitlement. (But bear in mind that Brexit may have had an impact on this in practice, even though the scheme should not be affected – very much ‘work in progress’).

They will do this by adding together the contribution years of each country and then applying this to their own pension rules. This means that, even if you don’t have the minimum number of years’ contributions in one country, the chances are that the contribution years in other countries will ensure you get a pro rata pension. Don’t forget, official retirement age can vary in different countries, and some state pensions are more generous than others.

Each country will then pay their share directly to you, and if you have continued paying into the UK system it’s likely you’ll end up with a much higher pension than might otherwise have been the case.

How is healthcare affected? Any other issues?
The good news is that receiving your pension locally will mean that your access to the local healthcare system comes with it – no need for a form S1. So, any attempts by the UK to remove themselves from the S1 scheme will not affect you.

Note that, although the UK state pension is paid regardless of your other income, the state pension in Spain is not, in that if you wish to continue to work, Spain will not pay anything to you.

10 TIPS FOR MANAGING YOUR FINANCES

Other financial planning tips?
Despite the UK government’s attempts to water down the ability to ‘export’ your UK private pensions using the QROPS arrangements, this is still

possible – but perhaps won’t be for much longer. So, obtain advice about whether such a move would be beneficial, as soon as possible.

Any savings or capital you have should be invested tax-efficiently and with the aim of protecting it against both inflation and exchange rate fluctuations. Stock markets can fluctuate too, sometimes dramatically as we have seen, so be careful you understand the amount of risk your investments are exposed to, and seek help from a suitably qualified professional who will be able to help you over the long term.

Being prepared for BREXIT in France

By Katriona Murray-Platon - Topics: BREXIT, France, Pensions, QROPS, UK Pensions
This article is published on: 11th March 2020

11.03.20

On 31st January 2020, the UK left the EU. However, the real effects of Brexit, for those of us living in France, will not properly be felt until after the 31st December 2020 (what an interesting New Year’s Eve that will be!) and thereafter. Hopefully, by that time we will have a clearer idea of what our rights and responsibilities are. Until then there will still be much speculation and media noise, which may be just as confusing as it has been over the past four years.

One thing Brexit has established, from the very beginning, is that British citizens living in France, or planning to settle in France, need to get their affairs in order and decide where they would like to live for the foreseeable future. As British citizens we can always return to the UK if we so choose, but if we want to continue to live in France we must show that we have lived here continuously for the last five years or that we intend to continue living here in future.

The next few months are going to be very interesting and it is more than ever important for British citizens to consider some important financial changes.

Pensions after Brexit
In 2006, the UK introduced a law making it possible for UK private pension benefits to be transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS), provided that the overseas scheme meets certain qualifying conditions.

For those pensions that can be transferred there are many benefits including:

  • No obligation to purchase an insurance company annuity, at any time
  • The potential to pass on the member’s remaining pension assets to nominated beneficiaries on death with minimal or no death duty payable. By comparison, currently a tax charge at the beneficiary’s marginal rate can be applied in the UK, where the member is over age 75 at death
  • A wider choice of acceptable investments offered, compared to UK pension plans
  • The underlying investments and income payments can be denominated in a choice of currencies, which can potentially reduce exchange rate risk
  • Potential to receive a larger amount of Pension Commencement Lump Sum compared to UK schemes
  • Depending upon the jurisdiction where the QROPS is set up, income payments may be made without the deduction of local taxes, meaning that income will only be taxed in accordance with the law of the jurisdiction where the member is resident

In 2017 the UK government announced its intention to introduce a new 25% Overseas Transfer Charge (OTC) on QROPS transfers taking place on or after 9th March 2017. This charge does not, however, apply where the QROPS is in the European Union (EU) or EEA and the member is also resident in an EU or EEA country (not necessarily the same EU or EEA country) and remains EU or EEA resident for the next five full UK tax years.

Many of those who work in the industry believe that after the transition period, it may no longer be possible for British citizens to transfer their pensions into an EU QROPS without incurring the 25% charge.

QROPS may not be suitable for everyone and much will depend upon the nature of the UK pension benefits being considered for transfer, as well as the person’s attitude to investment risk. Transferring a pension to a QROPS is not a decision that should be taken lightly nor in haste and proper financial advice with an experienced adviser is essential. Even when the decision has been made to transfer the pension it may take a good few months to complete, which is why, if you are even considering this possibility, it is important to contact a local adviser to explore what your options are.

Taxes after Brexit
As tax between the UK and France is determined by the Double Tax Treaty, this will not be affected by the fact that the UK has left the EU. However, whilst not directly taxed, a lot of UK income, such as UK rental income, is added to the taxable base and increases the tax margin of the French taxpayer. If you intend to live in France, you may want to consider whether it is really in your interest to hold onto UK assets.

It is possible to protect your capital investments in France and ensure that they can grow in a tax efficient environment by way of an Assurance Vie policy. French Assurance Vies or French approved foreign Assurance Vies offer valuable benefits when it comes to income tax, inheritance tax and estate planning. Foreign portfolios and bonds are not treated as Assurance Vies and any gain is subject to tax and social charges irrespective of whether this income is taken or whether it is brought into France. If you are French tax resident, you are taxable on your worldwide income in France. Proving that you are French tax resident will be an important factor for establishing the Right to Remain in France.

Being resident in France does not necessarily mean that all your assets have to be in France or have to be in euros. There are many opportunities for holding sterling based diversified portfolios in a tax efficient manner.
For anyone intending to live in France for the foreseeable future, be aware that today’s valuable financial planning opportunities are unlikely to remain beyond the short term (31st December 2020 could be an important date in this respect). Contact me, Katriona Murray, and I will be happy to arrange a meeting.