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Paphos Harbour seafront; financial planning for retirement in Cyprus

If you have retired in Cyprus, or planning to, how can you ensure your pensions, savings and investments last your lifetime and provide for your chosen heirs? Here are five questions to consider.

Today, most people can expect to live into their 70s and beyond. UK government statistics put the average life expectancy of men aged 65 in 2017 at 83 and women at 86 – that’s 5 and 3.5 years longer than in 1989. Meanwhile, Britons aged 90 could expect to live another 4 years.

And all the benefits of living in Cyprus could help you live even longer!

While this is good news, increased life expectancy comes with some downsides. Simply put, can we afford the cost of living longer?

You can assess whether your resources are on track to last your lifetime by considering these five key questions.

1.  How much income will you need?

Do you want just enough each month to live comfortably in retirement, or perhaps a bit extra to afford some luxuries now and then? Would a modest income suffice so long as you have access to ‘rainy day’ or contingency funds?

If you are still working, will your pensions and savings cover your lifestyle needs, or are you planning to cut back when you retire?

Remember to factor in the effect of inflation on reducing your spending power each year. Say, for example, you spend €5,000 a month. Assuming an inflation rate of 3% a year, in 10 years’ time you could need about €6,720 a month to maintain the same spending, and €9,030 in 20 years.

2.  How much do you want to leave behind?

If you want to leave a lasting legacy for your family or other heirs, you have to make sure you do not spend it in your own lifetime – without compromising on your own quality of life today.

A holistic financial planning approach – that considers estate planning alongside your wealth management and tax planning – can prove invaluable here.

3.  How can you get the most from your pensions?

For most people, pensions are the key to financial security in retirement, so you need to take extreme care to do what is right for you. The State Pension is unlikely to fulfil your requirements alone.

While you should review your options, your best approach could be taking no action at all, especially if you have a ‘final salary’ pension that guarantees an income for life. In any case, beware of opportunities to ‘liberate’ your pensions before age 55, as these are likely to be scams.

Retired expatriates can benefit from transferring UK pensions to an EU/EEA-based Qualifying Recognised Overseas Pension Scheme (QROPS) or reinvesting a lump sum into Cyprus-compliant arrangements. As well as tax efficiency, this can provide estate planning advantages and flexibility to take income in sterling or euros. However, there are many variations in products and jurisdictions that can affect the benefits. Take personalised, UK-regulated advice to establish the most suitable approach for your circumstances and goals.

Transfers into QROPS are currently tax-free if both you and the QROPS are based in the EU/EEA (European Economic Area). Otherwise, the UK government charges a 25% ‘overseas transfer charge’. If, as many are speculating, the UK extends this charge to the EU/EEA region after the Brexit transition period ends in December, there could be limited time to transfer without tax penalties.

So if you decide transferring is right for you, take action as soon as possible – bearing in mind that transfers can take months to complete – to lock in today’s benefits and avoid unnecessary taxation.

Learn more about the ‘overseas transfer charge’

4.  How can you make your savings and investments last?

You should review whether your savings, investments and assets are working as hard as they can for you and are protected from unnecessary taxation. For example, are you making the most of the tax-efficient opportunities available in Cyprus or are you holding onto UK assets that attract higher taxation and maybe even provide less growth? If you are a business owner, have you started planning a tax-efficient exit strategy to get the best out of your years of hard work?

There are also currency considerations. Taking income in sterling while spending euros in your daily life makes your money vulnerable to conversion fees and exchange rate risk. Explore arrangements that offer the flexibility to hold investments in more than one currency and convert when it suits you.

Do not underestimate inflation here too. While it is tempting to choose low-risk investments in your later years, your capital still needs to keep pace with the cost of living, and cash in the bank is unlikely to do this. Your financial adviser can recommend a diversified investment strategy to meet your situation, goals and risk tolerance.

5.  How can you limit the effect of taxation?

An undesirable side-effect of rising life expectancy is a general trend for tax rises, as governments struggle to finance escalating pension and healthcare services for ageing populations.

Higher taxation can be a threat to your financial security in retirement. Look for compliant arrangements available to expatriates in Cyprus that can significantly minimise taxation, making your money go further, for you and potentially your chosen heirs. For the best results, take personalised, cross-border advice.

Whatever your stage of life, good financial planning can help you afford the lifestyle you want for as long as you need, so you can focus on enjoying your time in Cyprus.

Contact us for a financial planning review

This article should not be construed as providing any personalised investment advice. You should take advice for your circumstances. The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.