Other popular countries include France, Portugal, Italy and the Far East.
The figures have emerged from an opinion poll of 1,013 British over 50s who are yet to retire, conducted by Censuswide on behalf of UK pension and insurance firm Retirement Advantage.
Pitfalls to avoid
According to Andrew Tully, pensions technical director at Retirement Advantage, the key drivers behind Brits’ seeking a place in the sun in their later years include the prospect of a better lifestyle, better weather and a cheaper way of life.
However, currency fluctuations, different tax regimes and other financial issues can represent significant hurdles to overcome so it’s important to “do your homework on the country you want to move to” before departing the shores of Albion.
“Local tax laws, currency exchange rates and other financial issues can easily catch out the unwary,” Tully warned.
Missing out
In particular, a major problem is whether expats will be entitled to future increases in the state pension.
“For example, if you retire to some countries, you will not be eligible for increases in the state pension, which currently rises by the higher of inflation, earnings or 2.5%, under the ‘triple lock’ mechanism,” the pension specialist explained.
“Countries in the EU, as well as many others, have ‘reciprocal arrangements’ with the UK, meaning your state pension will increase each year.
“However, other countries including Australia, Canada and New Zealand do not, which means the state pension will not increase once you move overseas.”
By way of example, this means that a single person who retired to Canada in 2007 would have their state pension fixed at £87.30 a week.
Had that individual stayed in the UK they would now be receiving £122.30 – a difference of 40% or £1,820 ($2,373, €2,012) less annual income.
“Check what reciprocal agreements are in place with the destination country regarding your UK state pension and other social security benefits,” Tully advised.
Brexit fog
There are also no guarantees that retirees within the EU will continue to receive state pension increases after Brexit.
“When we leave the EU, reciprocal arrangements will form part of any deal reached, so it is unclear what the position will be in future,” Tully noted.
“It’s worth keeping in mind how your financial position would be affected by changes to these agreements as well as how incomes paid in sterling are affected by currency exchange rates.”
Speak to HMRC
Tully also outlined some steps that future expats could take towards a smooth transition, like notifying the taxman of their intention to relocate.
“Tell HM Revenue and Customs that you are moving overseas. This allows them to let you know of any UK tax liability you may have even though you are living overseas,” Tully said.
More importantly, liaising with HMRC can allow any UK pension to be paid gross and to be taxed in the expat’s country of residence.
However, this only applies if said country has a double-taxation agreement with the UK.
