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Why retirement planning matters at any age
Tuesday, 16 November 2021

Whether you are nearing retirement or it is several years away, it is never too early to start thinking about how you will finance your golden years. Even if you are already retired, you should regularly review your arrangements to ensure you continue meeting your retirement goals.

It might be that you enjoy spending time in Spain and would like to retire in the sun, now or a few years down the line. Or maybe you are already living here and are unsure what your options are.

Whatever your situation, what do you need to think about to secure your dream lifestyle in retirement?

Approaching retirement

Even if retirement is a way off, there are certain things you need to consider – the earlier the better – to make sure you are on the right track financially. There may be steps you can take today to help make your retirement goal a reality.

Ask yourself:

·       Will I be able to afford to retire when I want to?

·       What is the best strategy for withdrawing from my business or employment?

·       What options do I have for my pensions? Are they likely to change?

·       Will I be able to retain my existing wealth and assets?

·       Do I want to spend some or all of my retirement abroad?

 

Let’s say that you plan to retire within the next few years and move permanently to Spain. You may have concerns about whether you can afford your preferred lifestyle without having to sell existing assets. Perhaps you have a business to sell and are unsure how best to convert your years of hard work into a retirement nest egg. Then there are the complex residence and tax implications of living in a different country.

Here, professional financial advice can prove invaluable, especially with an adviser who understands Spain. They can take a holistic view of what you have – your savings, investments, assets, pensions – together with what you want – your timeline, income requirements, legacy wishes – and an objective assessment of who you are – your circumstances, goals, risk appetite – to design a personalised retirement plan for you.

Already retired

Being retired doesn’t mean you should forget about retirement planning. After all, you could be retired for thirty years or more!

Regular reviews allow you to adapt your strategy to suit your changing circumstances and goals, such as incorporating new family members, addressing health issues or relocating. It enables you to keep up with the ever-changing tax and pensions landscape, including new opportunities that could work in your favour. 

Your pension options

Pensions are usually the foundations of retirement, so deciding what to do here may be one of life’s most important financial decisions. Pensions are complex, and with greater freedom and choice than ever, you must take great care.

You might benefit from consolidating several UK pensions into one to provide a coherent, more cost-effective investment platform for your retirement income. However, this may not be the most tax-efficient approach if you live in Spain. Receiving pension income in sterling, also exposes you to conversion costs and exchange rate risk.

British expatriates have the option of transferring UK pensions to a Qualifying Overseas Pension Scheme. QROPS can unlock advantages you do not always get with UK pensions, such as flexibility to take income in euros and more freedom to pass benefits to chosen heirs. Transferred funds would be protected from further UK lifetime allowance charges.

Transfers an EU-based QROPS by an EU resident are currently tax-free, but transfers outside the EU/EEA invite a 25% UK tax penalty.  So far this has not been extended to EU transfers post Brexit.

Expatriates in Spain should be aware that, following Brexit, their UK pension plans could now be liable to Spanish wealth tax.  A 2019 tax ruling concluded that non-EU pension plans do not qualify for the wealth tax exemption.  Transferring your pension plans into an EU pension plan, such as a QROPS, should help avoid this complication.

Transferring is not a one-size-fits-all solution and the benefits of a QROPS can vary between providers and jurisdictions. Take regulated, specialist advice before making any significant pension decision to protect your benefits and establish the most suitable option for you.

Keep an eye on the UK’s lifetime allowance (LTA). The UK caps how much you can hold in combined pension benefits (excluding State Pension) without paying extra tax. The limit is currently £1,073,100 and will not increase until 2026. Once your pension funds exceed the limit, you pay a tax charge whenever you access your money – 55% for lump sums or 25% for income or transfers to an overseas pension.  This also applies to non-UK residents.

Although your pension will be assessed for the LTA when you transfer into a QROPS, after that your funds would be protected from these charges.  If investment growth could take you above the limit, transferring sooner rather than later could save you tax.

Retiring abroad

If moving permanently to Spain is on the cards, it is especially important to review your retirement strategy early. Not only will you need to consider your residence status and cross-border tax implications in a post-Brexit world, you’ll need to adapt your estate planning to suit Spain’s different succession rules.

In any case, careful planning is the key to minimising taxation and maximising the available opportunities so that you can enjoy the retirement you want for as long as you need. For the best results, take specialist, cross-border advice.

 

David Bowern, Partner, Blevins Franks

+34 952 809 212

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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.

 

Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.

 

 

You can find other financial advisory articles by visiting our website here

 

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