My wife and I are contemplating retiring abroad within the next couple of years. While I appreciate this is a complex area, I would be grateful for any general advice or guidance you can offer us. In particular, I am interested in what will happen to our pensions, personal and state, should we choose to retire abroad.
I assume you are familiar with the concept of residency and, as you have said you are intending to retire abroad as opposed to spending part of the year abroad, I suppose you intend to move permanently, perhaps only coming back to the UK for short visits. If so, it is likely you would be treated as non-resident in the UK for tax purposes.
It would be prudent, as part of your pre-retirement planning, to begin to compile details of all the pensions held by yourself and your wife in order to ascertain what level of income you can expect to receive in retirement. This is important because, generally speaking, your pension entitlement both from the state and from any approved pension schemes in the UK will remain regardless of whether you retire in the UK or abroad.
Up-to-date illustrations of possible benefits at retirement can, of course, be requested from the insurance companies concerned for your personal pensions and, if you complete form BR19 and send this to the DSS, you will receive a forecast of your state pension entitlement and any widow's benefits payable on your death.
I am sure both yourself and your wife will have given great consideration to the prospect of moving abroad and what this could mean for either of you in the event of ill-health or death. The UK enjoys special social security arrangements with a number of countries and you will want to check the position regarding the country you intend moving to before making any final decision.
As part of this, you will need to know whether payments in respect of the state pension will increase during your retirement as, although your entitlement to a state pension will remain, your entitlement to adjustments (which pensioners in the UK receive as a matter of course) may not follow, depending on the country you intend moving to.
Consideration will also need to be given to how you wish any pension payments to be made to you. It may be possible for monies to be transferred direct to a bank acc-ount abroad. However, payments may need to be paid into a UK bank account and then transferred automatically to a bank account abroad or on your instructions only if you expect volatile fluctuations in exchange rates between the two countries.
You will also need to consider your tax position on moving abroad and I would suggest that an investment in specialist tax advice would be worthwhile. Tax is collected by the UK not just in respect of its residents but also in respect of any UK income for non-residents. Therefore, you can see that, as pension income is treated as earned income, a liability could exist irrespective of whether you are treated as resident or non-resident.
Fortunately, the UK has in place double-taxation treaties with a large number of countries. These individual and unique agreements have been designed to try to avoid the position where tax is paid both in the UK and abroad.
If the country you have moved to shares a double-taxation treaty with the UK (and a large number do including countries such as France, Australia and the US), then it is likely that the pension payment would be paid gross in the UK and taxed in the country of residence.
If a double-taxation treaty is not in force, it is possible that an individual will be subject to tax both in the UK and abroad in the new country of residence.
Tax would be collected via PAYE on personal pension annuity payments.
In order to ensure you have all the information you require in order to make an informed decision and make any arrangements accordingly, it is vital that advice and information is sought both from your local inspector of taxes in the UK, the tax authorities abroad and a specialist adviser who can guide you through the whole process.