Spain remains the most popular destination for retirees looking to start a new life overseas, according to the latest research from Retirement Advantage. It’s followed by France, Portugal and Italy.
The survey found that as many as one in 10 over 50s are considering retiring overseas despite Brexit creating uncertainty for those planning to retire in the European Union.
Andrew Tully, pensions technical director at Retirement Advantage, says: “Retirement means different things to different people, including spending more time at home with the family, starting a new hobby or volunteering. For others, it’s the appeal of retiring abroad, with the prospect of a better lifestyle, better weather and cheaper living costs than the UK.”
Our top retirement hotspots:
4) Italy and South Eastern Europe (joint 4th)
5) The Far East
7) New Zealand
However, Mr Tully warns currency fluctuations, different tax regimes and other financial issues can cause a major headache so it’s important to do your research before you jet off.
A major issue is whether you will be entitled to future increases in the state pension.
Mr Tully explains: “If you retire to some countries, you will not be eligible for increases in the state pension, which currently rises by the higher of inflation, earnings or 2.5%, under the 'triple lock' mechanism.
“Countries in the EU, as well as many others, have ‘reciprocal arrangements’ with the UK, meaning your state pension will increase each year. However, other countries including Australia, Canada and New Zealand do not, which means the state pension will not increase once you move overseas.”
This means that a single person who retired in Australia in 2007 would have their state pension frozen at £87.30 a week. Had that individual stayed in the UK they would now be receiving £122.30 – a difference of £1,820 in the current year and one that will only keep growing as the state pension increases each year.
“Future position of state pension in EU is unclear”
There are also no guarantees that retirees within the EU will continue to receive state pension increases after Brexit. He adds: “When we leave the EU, reciprocal arrangements will form part of any deal reached, so it is unclear what the position will be in future.”
It is also important that retirees in any part of the world will be at the mercy of currency fluctuations because they are likely to be receiving their income in sterling and using that to buy the currency of their new home.
Retirees in the Eurozone have already seen their spending power reduce by around 20% since the pound reached a five-year high of 1.44 Euros in the summer of 2015. This week the pound buys just 1.1 Euros.
Mr Tully says: “To help navigate the complexities of retiring abroad, especially given the uncertainties from Brexit, it is vital people seek professional financial advice. There are a number of companies able to help budding expats, and receiving the right advice could make the difference between making a retirement dream a reality or a nightmare.”