Protect your pensions and retirement savings for the long-term

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Protecting pensions and savings

Protecting your pensions and savings is essential to safeguarding the money you have set aside for a comfortable retirement. Here, we examine a few key factors that you should consider.

Our pensions are often key for our long-term financial security, but unfortunately, they are complex.  Deciding what to do with yours involves navigating various options, establishing how they suit your objectives, researching the tax implications, and weighing up the pros and cons.

UK pension and tax regulations change regularly, often impacting British expatriates, and foreign tax regimes are rarely straightforward. You need to keep up to date on reforms in both countries so you can review your retirement planning as necessary and make informed decisions.

Lasting a lifetime, the longevity factor

How long will you live? And your spouse?  Without a crystal ball, this is an unknown factor in financial planning, but an essential one nonetheless because you need your money to last as long as you do.  The average life expectancy for a male aged 65 today is 85, with a 25% chance of living to 92.  For a 65-year-old female, the average life expectancy is 87, with a one in four chance of reaching 94.  Our hope is that we live longer than average and should therefore plan for living to a ripe old age.

When you consider that often it is necessary for the wealth of a deceased spouse to pass to their surviving partner for them to continue having sufficient money to live on, the need for a financial planning roadmap is very important.

Studies show that many people, including affluent households, often overestimate how long retirement savings will last.  While you may always be able to afford basic living necessities, your later retirement lifestyle could fall well below your expectations. This could, for example, affect the level of care you can afford if needed in your later years, an important consideration if you live in a different country to your family.

Much depends on the type of pension you have. A pension providing a secure income for life can provide peace of mind. Other options provide the opportunity for your funds to grow, but you need to carefully manage investment risk and the rate of withdrawal from the pension fund to meet your income needs.

The inflation, income, and investment factors

Recent inflation levels and rising prices have reminded us about how much inflation can impact our spending power.   While we cannot predict inflation rates in our future years, even low levels reduce the value of savings and income over the long term. It is essential to plan ahead for it, for both our pensions and investment capital.

The last couple of years have not been kind to retirees, with the high cost of living and the possibility of investment portfolios being lower too.  In this environment, people may be tempted to draw higher amounts from their pension fund.

When this is combined with longevity, the impact of spending too much in the short term (especially when portfolio returns are lower than average) can affect the long-term value of your funds and the ability to meet future income requirements. This in turn can cause a dilemma for retirees who need to meet today’s needs while protecting their future needs as well.

With a sensible portfolio and drawdown plan, this can be effectively managed.  The key is to understand your financial needs – the amount required to cover basic living costs, for both day-to-day costs such as shopping, meals out and fuel,  and one-off expenses such as holidays or a new car. Then review and adjust your plan to cater for the year-to-year increases in the cost of living and portfolio performance over time.

The tax factor

When weighing up the options for drawing your UK pension as an expatriate it is important to take the tax implications in your country of residence into consideration.

In most countries (including Spain, France, Portugal, and Cyprus), most UK pension income is subject to local taxation if you are resident there.  This usually includes lump sums.

The key exemption is income from government service pensions, which remains liable to UK income tax.  Non-residents currently continue to benefit from the £12,570 personal allowance (assuming they do not receive ‘disregarded income’ treatment).

The UK’s pension lifetime allowance, that used to result in tax charges of 25% or 55% for those breaching the limit, has been abolished, but from 6th April 2024 it has been replaced by three new allowances. The ‘lump sum allowance’  and ‘lump sum death benefits allowance’ limit how much can be taken as a tax-free lump sum, by yourself or your beneficiaries, while the ‘Overseas Transfer Allowance’ limits how much can be transferred tax-free into a qualifying recognised overseas pension scheme.  And if the Labour Party are elected to government, it could all change again.

The advice factor

Pensions are very personal, so establish a solution that works for your circumstances, needs and objectives.

Since they are so complex and making a wrong decision could impact your retirement security, you really do need to take professional, regulated advice. In any case, the UK rules require this for certain pension transfers.

The problem for UK nationals living in the EU is that most UK advisers are not regulated to give advice to EU residents – they lost their ‘passporting’ rights with Brexit.  Unless they have taken steps to be correctly regulated here, they should not be advising you.

Even without this issue, it’s important to get local advice in your country of residence. Most UK-based advisers are unlikely to have an in-depth understanding of the tax regime in your country of residence, which can result in you paying much more tax than you need to.

Blevins Franks is regulated to provide advice on UK pensions in Spain, France, Portugal, Cyprus, Malta and the UK, and has the specialist cross-border experience you need – a thorough knowledge of UK pension regulations and of both UK and local taxation and the interaction between them.

Contact us for more information on how we can help safeguard your retirement years.

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; individuals should seek personalised advice.

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