Many British pensioners, either living in the EU or considering the move, have spent the last five years theorising about what impact Brexit might have on their finances and future. The end of March marked 90 days since the end of free movement of people, goods and services between the UK and EU. By this time, Brits residing in EU countries needed to apply for the relevant documents and biometric residence cards, to prove their eligibility to enjoy the rights defined in the Withdrawal Agreement. Without this proof, they were forced to return to the UK voluntarily, or face fines or deportation. We've already seen many reports of British pensioners leaving their homes in the Spanish sun, as well as a general reduction in British retirees living in the EU.
And there are other practical considerations for Brits retiring in the EU, for example what a post-Brexit world means for their finances and pensions. Whether they will still be entitled to receive their UK state pension, how they will actually receive it, and whether it will be "frozenâ€, or rise in line with inflation.
After years of speculating, we now have some clarity over the rights of British pensioners in the EU. Here's what you need to know about your pension payments post-Brexit.
The good news
As things stand, for Brits planning to enjoy their retirement in the EU, the rules around state pensions remain broadly as they were. If you qualify for a UK state pension, you can claim it anywhere in the world. You'll just need to have made National Insurance Contributions (NICs) for a minimum of 10 years, and that applies to both the basic or new state pension. You can receive your payments to a bank account of your choosing, whether British or foreign.
UK state pensions paid in the EU will also continue to benefit from "upratingâ€, which means that they will continue to rise in line with inflation, earnings, or by 2.5% â€“ whichever is highest. "Pension aggregation"will also continue, so Brits who have worked in different EU states will still have these periods accounted for in their UK state pension.
The less good news
While these decisions have been welcomed by British retirees in the EU, you must still take steps to protect yourself financially in a post-Brexit world. For instance, your UK pension may not go as far in the EU as it does at home. You need to factor in the costs involved in converting your pension into local currency and, depending on the strength of the pound at the time you exchange, you could lose out on poor rates and costly bank fees.
And there are other considerations, for example:
Paying tax on your pension
Depending on your status, you may need to pay tax on your pension either in the UK or in your resident country. For example, if you live abroad but are classed as a UK resident for tax purposes, you may have to pay UK tax on your pension. And if you're not a UK resident, then you might need to pay tax on your pension where you live.
There are a few exceptions to the rules above, so the best course of action is to contact the UK government to work out where you'll be required to pay tax. In any case, you must inform the authorities of your plans to retire abroad, so it's a good idea to check your tax status at the same time.
Where to receive pension payments
Consider whether you'd rather receive pension payments to your UK bank account, or get them paid into a foreign account. If you opt for the latter, you'll need to pass your international bank account number (IBAN) and bank identification code (BIC) numbers to the Department for Work and Pensions. You'll be paid in local currency, which could mean you lose money if the exchange rate is unfavourable at that time. It's also worth thinking about what will happen when you visit the UK, if you plan to do so. You could end up wasting large sums of money, if you're constantly converting cash to or from pounds and euros.
Even if you prefer to have your pension paid into your UK account, bear in mind that this might not be possible. Following Brexit, you may need to close your UK bank account if you're no longer a UK resident. The situation varies from bank to bank, so contact yours directly to discuss your options.
Research FX providers
In any case, wherever you receive your pension, you should plan carefully in order to minimise bank transfer costs, and exposure to fluctuations in the currency market. YouGov carried out research on behalf of CurrencyFair in 2019, and found that competitive exchange rates were important to 26% of expats surveyed. Shifts in how the pound is performing against the euro could work in your favour, but they could also cost you. Follow the market, and learn when is the best time to exchange in order to take advantage of movements in your favour.
Banks typically charge 8x more for every money transfer than FX providers such as CurrencyFair, which can add up to considerable amounts over time. By using CurrencyFair, you can relax in the knowledge that you'll always secure the best rate available at that time, and enjoy reduced fees in comparison with the banks.
And CurrencyFair is authorised under the Temporary Permissions Regime (TPR) from the Financial Conduct Authority (FCA) in the UK, so will continue to offer you the best rates in a post-Brexit world.
Places to get help
Retiring in the EU isn't impossible, or even necessarily more difficult, post-Brexit. Check out the following services offering support for Brits who want to learn more about managing their pensions and finances abroad:
- Pensions Advisory Service.
- International Pension Centre (IPC).
- Money Advice Service's Brexit and Pension support.
- You could also hire an independent financial advisor - here are some tips on where to start.
A little research in advance means you'll be able to minimise any Brexit fallout, financial or otherwise.
Learn more about how CurrencyFair can help you avoid hidden currency exchange fees when transferring money overseas.
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