Paradise postponed? Don't give up on retirement in a sunspot

Deterred by the financial crisis, people are putting emigration plans on hold. But there's no need, find Kate Hughes and Julian Knight, if you plan ahead

(AP)

It's cold, it's dark and we've got no money. The dream of emigrating at retirement really takes hold during the long winter months. And this time around, with a painful recession under- way and the credit crisis still biting hard, the temptation to leave these shores must be greater than ever.

However, this self-same financial crisis is putting many of us off the idea of spending a happy and hopefully comfortable retirement in foreign climes. In fact, one in 10 Britons who would like to move abroad have now put their plans firmly on hold, according to research by the credit reference agency Experian.

A host of factors could be acting as deterrents. First, the property crash is making it harder for people to sell their home, their biggest asset. Of course, the flipside of this is that the price of property in many premier destinations for emigrating Brits, such as Spain and Italy, is also falling. This, however, is offset by the dramatic fall in the value of the pound against the euro. And anyone looking towards the US as the retirement destination of choice will be aware that last week the pound dropped to the lowest level against the dollar since 1985.

In short, Britons' retirement war chests are shrinking, forcing some people to give up or put on hold their overseas dream.

But all this gloom shouldn't stop those who want to depart Blighty's shores from doing so, specialist financial advisers suggest, and overseas retirees can still make the most of their money – it's simply a case of planning.

"Retiring abroad can be a financial minefield," says Ashley Clark, director of Needanadviser.com, an independent financial adviser that specialises in guiding expatriates. "Many people choose to just muddle through, but if you take that approach then you can lose out.

"Long-term planning is a must," he adds, "from what happens to your pension, to property purchase, to how and when you move your assets out of the UK into the country where you want to retire to."

As for retirement funds, almost a million Britons draw their state pension abroad, according to Saga, the over-50s specialist insurer. But the way your pension pot is treated can vary considerably depending on where you go.

If you reach state retirement age before you leave the country – that age is currently set at 65 for men and 60 for women – and you are moving to another EU nation, you should receive your state pension in full. Any occupational pension you've accrued will be paid in excess of this and shouldn't be affected by your choice of destination, although some schemes may insist that payments are made to a UK bank account.

Interestingly, British pensioners living abroad should be eligible for the UK winter fuel allowance. But in countries outside the EU, although you should still receive a state pension, its value may be frozen at the time you leave. This means that it will gradually be eroded by inflation.

If the UK state pension age is still some way off for you, investigate the state scheme in your new country of residence, as it may be worth building up your entitlement in that country too.

"The key to effective overseas retirement planning is to decide how long you expect to be away," says Mr Clark. "Not only could it affectyour retirement income, but also tax and healthcare."

Any tax liabilities will probably be calculated according to the rules in your country of residence. But if you spend more than 183 days at any one time, or 91 days a year over four years, in the UK then you are subject to British taxes. Inform Revenue and Customs of your change in residency if it is permanent, and be careful you don't get taxed twice – check for a double-taxation treaty with the UK and your country of residence.

Wills and inheritance tax are also very tricky overseas. In Spain and France, for example, the authorities can override any conflicting dying wishes to provide for your children. Make a will that complies with local law and remember that you still need a binding UK will if you keep property or other assets in the UK.

Death duties in many countries are punitive, so if you aren't planning to return to the UK even in very old age, your inheritance tax planning should be in terms of assets held both at home and in your country of residence. But a long-term change to your residency will affect your healthcare entitlement both here and overseas. As a non-UK resident, it is unlikely that you will be entitled to free treatment on the NHS simply by returning to Britain.

What's more, while living abroad you will have to make do with what the healthcare system of your chosen country has to offer, even if armed with the European Health Insurance Card. In some cases, doctor's appointments and medicines will have to be paid for.

One option, popular among retirees, is to purchase private medical insurance. This can be bought with optional overseas cover. However, this will increase premiums and it may be tough to find an insurer that offers the option for nations outside the EU.

For many, retiring abroad goes hand in hand with the purchase of a home. But here currency moves are a key issue. "Property is a massive purchase and even relatively small changes in the value of the pound can have a big impact on your buying power abroad," says Marc Cogliatti, currency strategist at the foreign-exchange specialist HiFX.

Against the major currencies – the dollar or the euro – the pound is very weak, but it shows a little more life against others. "Popular retiree destinations which have not seen such adverse currency moves are South Africa and, to a lesser extent, Australia," adds Mr Cogliatti.

"But," he continues, "people looking at the traditional retirement destinations of France and Spain will be counting the cost of the dramatic falls against the euro."

However, people who are worried the pound will slide further but still want to buy a property abroad may be best advised to fix their exchange rate now. "The pound is at a low level, but if you want peace of mind when a property purchase is in the pipeline, there is the option to fix," says Mr Cogliatti. "You pay a slight premium but you can be sure that the price you see today will be what you pay up to two years from now."

Another option, of course, is to rent rather than buy a property abroad. This will provide more flexibility in the event that you need to move back to the UK in a hurry, and there will be less need to take a currency punt.

Alternatively, those with a few years' planning time before retirement could continue to make their money work for them in the UK.

According to Peter McGahan, of independent financial adviser Worldwide Financial Planning, this will provide some breathing space and, hopefully, the pound's fortunes will improve. Investors will also have the protection of the UK's Financial Services Compensation Scheme. "This scheme underwrites deposits of less than £50,000 held in UK banks or building societies," says Mr McGahan.

"Ultimately, by choosing to wait, you stand a chance that sterling will recover. Once that happens, you can begin to move your money overseas."