International Retirement Ambitions

For decades retirees have been packing up their belongings and embarking on new lives abroad as they seek adventure, enjoyment and fulfilment in the next stage of their lives. Whether in pursuit of warmer weather, a change of lifestyle or a more affordable way of living, retiring abroad has certainly proved popular for UK residents, with an estimated 200,000 - 250,000 British retirees now permanently living in Europe [1].

Moving abroad and managing your pension from a different country can be tricky. Particularly in a post-Brexit world, where UK nationals no longer have the freedom of movement they were once entitled to. In addition to these restrictions, there are important tax and benefit considerations for retirees to bear in mind, such as pension drawdown fees and fluctuations in currency which can ultimately affect one’s retirement income.

PensionBee surveyed over 1,000 UK residents, aged between 18 - 73, who are planning to retire overseas to uncover their retirement plans; from their ideal destination and estimated pension savings, to how they are financially preparing for retirement and any potential future concerns.

Ideal destinations

Deciding where to spend your golden years is a very personal decision, some Brits have a dream destination in mind for many years, whereas others are yet to decide the perfect place for their adventure.

PensionBee’s survey indicated that one country was a clear winner with 34% of wannabe expats stating that they plan to retire to Spain. Not only a popular holiday destination, Spain already has approximately 750,000 British expatriates living there, [2] with research highlighting that living costs are on average 28% cheaper than the UK [3].

The next most popular destination for future expats was France securing 17% of the vote, while the USA ranked as the third most desirable at 15%.

Spain proved to be a particularly tempting destination for Generation X (41 - 54 years old), polling at 40% in this age group, compared to 34% for Millenials (24 - 40 years old) and 25% for Generation Z (18 - 23 years old).

The next most popular destination for both Millennials and Generation X was France, recording a preference of 17% and 18% of respondents, respectively. However, Generation Z selected the USA as their next most popular location, with 20% of respondents revealing that they would consider or plan to emigrate here in their later years.

Saving for retirement abroad

A recent survey by Which? [4] found that households enjoying a comfortable retirement in the UK spend an average of £26,000 per year, but may need as much as £40,000 to afford a more “luxurious” retirement.

Determining a budget for retiring abroad is slightly more complex, as the amount needed differs from one country to the next. The above-mentioned £26,000 per year average will go further in countries like Spain where savers can benefit from cheaper properties, a reduced cost of living and lower taxes and health care rates. Whereas the USA, which was selected as one of the top three ideal retirement destinations by all three demographics, is known for expensive health insurance, higher property rental prices and costly food bills.

Regardless of the location, all retirees will be affected by the exchange rate between the pound and the local currency, with this fluctuation having an effect on the amount of pension savings paid into a UK or overseas bank account.

With this in mind, PensionBee asked survey respondents how they are currently budgeting and planning for their overseas retirement. The majority of respondents (66%) reported that they “have saved or will save more towards their pension pot as a result of wanting to retire abroad”. Unsurprisingly, Generation X, who are the closest to retirement, reported having the largest amount saved, with an average pot size of £39,594.67. Millennials trailed behind with an average pot size of £25,226.88, while Generation Z had on average £18,918.42 saved.

It’s worth noting that these pension savings figures were collected from 1,000 respondents who are planning to retire outside of the UK. Therefore this may differ from the national average pension sizes of those planning to enjoy retirement in the UK [5].

Although Generation X has almost the same amount of savings as Generation Z and Millennials combined, the younger generations have the added advantage of many more years to pay additional funds into their workplace and personal pensions. They've also benefited from the introduction of Auto-Enrolment in 2012.

However, there are some notable variations. At opposite ends of the spectrum, 12% of all respondents said they haven’t saved anything for retirement, whereas another 12% of those surveyed revealed they had between £80,001 - £100,000 put aside for their retirement abroad.

Building a pension pot

So if the majority of future pensioners recognise that the dream of overseas retirement requires building up a larger pension pot, how do they plan to achieve this?

Notably, over half of respondents (54%) revealed that they “have started or plan to start additional investing in their spare time”. An additional 40% of respondents also stated that they “have started or will start a second job or ‘side hustle’ to help fund their ambitions”. This option was most popular with Generation Z, with over half (49%) of this age bracket embarking on a new venture to boost their finances. It’s well-known that younger generations are most likely to participate in the ‘gig economy’, but their commitment to putting these additional savings into their retirement fund is perhaps somewhat unexpected [5].

On the other hand, Millenials were more likely to scale back on their existing expenditure with 52% of respondents noting that they “plan to or already cut out small everyday expenses”  to help with saving for the future.

Accessing a UK pension when abroad

However, retiring abroad isn’t always plain-sailing with some retirees already claiming to feel the pinch of rising inflation costs overseas. Almost 500,000 international retirees are losing out on annual basic State Pension increases due to the UK’s “frozen pension” policy. This has left overseas residents missing out on tens of thousands of pounds in comparison to their UK counterparts [6]. Other difficulties have arisen for some retirees when claiming State Pension payments, with a number of expats reporting that their applications often stall or go round in circles [7].

With this in mind, PensionBee asked respondents how concerned they are about accessing their pension when abroad. The vast majority reported (71%) that they were “worried about potentially incurring extra fees or delays accessing their pension”. Millennials were most concerned out of all generations, with 75% agreeing, while two-thirds (66%) of Generation Z showed apprehension.

Deciding to retire overseas

Following the pandemic’s travel restrictions and the UK’s withdrawal from the EU in 2020, this uncertainty may have led some would-be expats to reconsider their plans. However, PensionBee’s survey analysis has shown that for the majority of respondents, the decision to retire abroad is a recent one.

Almost half (46%) of those surveyed said they had made the decision that they would like to retire abroad between 1 - 5 years ago. Just under a quarter (23%) of respondents revealed that they made the decision less than a year ago. Notably, 47% of respondents agreed that “COVID-19 travel restrictions have made me want to travel more in later life”.

How to look after your pension if you plan to move abroad

Spending your golden years outside of the UK requires thorough planning and a savers’ options will vary depending on the type of pension they have.

A pension will be unaffected if it's left in the UK. For savers that stop making pension contributions into their UK pension, it will remain active and continue to grow depending on the performance of its investments.

Consider these important actions to help take care of your finances in overseas retirement:

• Will your defined contribution pension be affected? - Those with a defined contribution pension can continue to have their savings managed by a UK pension provider. It may not always be possible to transfer your pension abroad and it’s important to check eligibility to avoid heavy tax penalties upon transfer.
• Can you claim your UK pension if you live abroad? - UK pension providers won’t usually let savers draw down into an overseas bank account. For the few providers who will agree to pay directly into an overseas account, there are often fees associated with doing so. If a saver has a bank account in the UK, they’ll be able to draw down into this. However, they’ll likely face transfer fees and exchange rates, so it would be worth investigating low-cost overseas transfer services.
• Will you qualify for tax relief if you live abroad? - Savers that are still paying into a UK-based pension from overseas will only qualify for tax relief if they've lived and paid taxes in the UK during that tax year, or are classed as a ‘Relevant UK Individual’ for tax purposes. They may only receive tax relief on contributions up to £3,600 gross unless they have relevant UK earnings within the tax year.
• Can you claim your State Pension if you move abroad? - Savers can receive their UK State Pension if they move abroad. This works in the same way as in the UK and can be paid into a UK or international bank account. If you live outside the UK and are paying into an overseas bank account, the State Pension will be paid in the local currency, so the amount received is dependent on the exchange rates at the time.
• This information should not be regarded as financial advice.