A major consideration for expats escaping Britain to live permanently overseas is the effect the move has on their finances.
Many cover all the obvious issues like paying for a new home and the cost of living but forget how poor pension decisions can lead to financial problems.
For instance, expats with private pensions should hold off from buying into an annuity.
The plus point of an annuity is the insurance contract will guarantee an income for life.
The downside is Pensions Minister Steve Webb and consumer groups criticise financial firms and advisers for paying meagre returns and hiving off a large slice of someone’s pension pot as fees for the deal.
Currency exchange issues
But expats also forget to factor in the impact of currency exchange rates into their retirement finance budgets.
It’s true most favourite expat destinations are enjoying lower inflation than the UK and often have a cheaper cost of living, but if all that annuity and state pension cash is going on essential lifestyle expenditure, exchange rates taking another slice of the pie can be an unexpected worry.
This is one reason why the Financial Conduct Authority (FCA), the UK’s financial fair play regulator, has demanded financial advisers should offer information about Qualifying Recognised Overseas Pension Schemes (QROPS) to ‘appropriate’ customers.
These customers would most definitely include anyone who is considering a permanent move overseas.
QROPS benefits
The benefits of QROPS even for expats with small-pot pensions include:
- Pension payments in a range of foreign currencies straight into the bank avoiding expensive foreign currency exchange rates and cash flow problems relating to timing cash transfers for the most lucrative deal
- No necessity to buy an annuity and a drawdown facility is built-in to most QROPS that allows the pension holder to control how much cash they take and when
- An enhanced tax-free lump-sum paid by QROPS in many jurisdictions of up to 30% of the transfer fund value
- All UK tax-relieved pension contributions can be switched to a QROPS without repaying the tax or any other penalty
Like all financial products, a QROPS comes with set-up costs and annual charges that reflect the size of the investment, but a suitably qualified financial adviser can help select a value for money pension from around the 3,500 different schemes available worldwide.
And expats shouldn’t worry too much if the country where they wish to live does not have a QROPS provider as many financial centres, like Gibraltar, the Isle of Man and Malta offer the pensions to clients living in other countries.
