Spain the top retirement hotspot

Spanish flag

Spain is the top retirement hotspot outside the UK, followed by Australia, the US, France and Ireland, according to Standard Life research.

Around 310,000 British citizens emigrate each year, according to the Office for National Statistics, with many of these entitled to a UK state pension. According to the Institute for Public Policy Research, Spain had more than 800,000 British residents in 2010.


While retiring to the Costa del Sol is a popular choice for many, it's not without its problems, as John Lawson, head of pensions policy at Standard Life, emphasises.

Retirees who move abroad must ensure they match retirement income and expenditure, as well as choosing either an annuity or income drawdown, says Lawson. He adds: "Your retirement income could also be subject to exchange rates and currency fluctuations, as well as local tax laws."

Read: Retiring abroad: When the dream becomes a nightmare

Retirees should also be aware that any increases in state pension will only apply to pensioners living in an EU country, or a country with agreements with the UK.

Individuals living in countries outside these arrangements – including Australia, Canada, New Zealand and South Africa – have their state pension frozen at the rate in force when they emigrated.

An individual who retires to a non-EU country for 20 years, and who doesn't uprate the basic state pension in line with the UK, could receive 50% less than their UK pension counterpart.

Assuming a growth rate of 4% a year, after 20 years a UK state pension could be worth £215.21 a week, while a pensioner in these non-EU countries would continue to receive just £102.15.

Reciprocal agreement

In light of this, Lawson highlights the need to think about state pension entitlement and any reciprocal agreement - which entitles the pension holder to any increases in basic UK state pension - that is in place in the destination country.

He adds: "However, if there isn't a reciprocal agreement in place, then you need to be very careful that your retirement income is sufficient to cover your living costs over a long period of time. Over a 20-year retirement, your basic state UK pension could halve in real terms if a reciprocal arrangement is not in place."

The Standard Life research is based on the pensions that Standard Life pays to more than 3,000 people using an overseas bank account. The most popular overseas bank account is in Spain.

This article was written for Money Observer


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