If you are planning to retire to Spain, you need to think about planning your finances well ahead of time. Pensions, savings, estate planning and investment may all be affected by your move to Spain especially in terms of currency exchange. We have some tips for things to be aware of and where to find help and advice to maximise your retirement savings and income.
Savings and investment risk
Throughout your working life you may have been happy to ride the highs and lows of the market with medium to high-risk exposure. However, once you are retired, you no longer have years ahead of you to correct any downturns in your portfolio. Once you retire, you will probably want to start drawing down your private pension and investments or investing in an annuity.
You should consult your private pension consultant and if necessary review your risk management strategy. You can also discuss what percentage of your savings you can draw down while leaving enough capital growth to keep up with inflation.
Taxation in Spain
If you become a non-UK citizen, different tax rules apply to your UK investments. For example, ISAs and bank interest become fully liable to tax, negating some of the tax benefits you may have been hoping for. However, once you become a Spanish resident, other investment opportunities may be available that would better suit your needs.
Sterling/Euro exchange rates
If your pension is paid in pounds sterling, you will need to transfer it into Euros in order to pay your living expenses in Spain. This leaves you open to the vagaries of the currency market. If the pound is strong against the Euro, you will get more Euros for your money, but if it is weak you will receive less.
The terms of UK state pensions may change in future for expats. Currently UK pensioners living in Australia, Canada, New Zealand and South Africa have their pensions frozen at the date of their retirement or departure from the UK with no increase to keep up with inflation. Currently anyone residing in an EEA country will receive uprated amounts, just as UK residents do, but this could change.
According to an article by Blevinfranks, “many expats choose to transfer their UK pensions to a Qualifying Regulated Overseas Pension Scheme (QROPS) or reinvest funds into more tax-efficient arrangements for their Spanish residence. As well as reducing taxation, this can offer benefits such as greater access to funds and more flexibility to choose how it is invested and in what currency to take income”.
Understanding your pension options and protecting your financial security is crucial so take advice from a specialist in Spanish pension law.
You may have already made a will in the UK as part of your estate planning, but living in Spain will have legal and tax implications on your estate. It can be a complex matter, so make sure you understand your rights and talk to a specialist in Spanish estate planning to ensure your wishes are honoured.