Fiona Murphy goes through this month's Inquiry on retiring abroad
Moving to sunnier climes is a dream for many clients picturing their later years. Research by MGM Advantage shows Spain, France and Australia are retirees' favourite destinations. However, retiring abroad takes significant planning.
In this month's Inquiry, we asked our readers about overseas retirement. Do advisers expect the number of clients retiring abroad to change over the next five years?
Over half (54%) expect volumes of people flocking abroad to increase by a small extent. A quarter (27%) expect no change. A tenth (12%) expect a large increase. Less than one in ten (8%) predict a small decrease.
Andrew Tully, pensions technical director at MGM Advantage says: "We'll see more people over the next five years reaching retirement. Even if the same percentage [as current] goes abroad, we should see more people retiring abroad."
"The economic climate and how much money people have might stop it. Although you might see people going to Spain and Greece because it could potentially be cheaper compared to the cost of living here because those countries are not doing that well."
Mike Coady, group director of De Vere Group says generally workers move for economic opportunity, retirees for lifestyle choices. However, he has seen an increase in retirees moving abroad, when they may have withheld the decision due to fiscal uncertainty in previous years.
He says: "More people are getting more Euros for their pound. People are starting to make those decisions again.
"If [a retiree's] pension and investments gives them less than £50,000 a year, [arguably] people would go to a more tax efficient location [than the UK]."
Next we asked: which key areas of retirement planning do you cover when advising clients retiring abroad? Most (88%) said pension planning. Half (54%) said tax planning and a further half (50%) said estate planning. A further 15% said other, citing currency matching, investments and new tax and inheritance issues.
Pension planning is a real concern. The UK state pension is frozen when people move to countries including Australia and Canada, meaning retirees lose out on income each year.
Retirees also have to consider how a move abroad would affect any private provisions.
"The biggest question is do you leave [your pension] in the UK or take your pension with you? That's a complex decision. Financial advisers have to be up on QROPS - you can only transfer to certain pension schemes abroad. Advice is required on whether you move your pension abroad or leave it in the UK" says Tully.
With the focus on pension planning, we wondered how popular QROPs are with expats - especially considering the market's recent ups and downs. So we asked our respondents: Are you seeing any growth in the QROPS market?
Two thirds (60%) are not forecasting growth. QROPS are seen as risky and expensive. Clients are wary of offshore products, what one adviser called ‘the Jimmy Carr effect.'
Clients are put off by HMRC's intervention in April. One adviser said: "One of the large employers I look after has staff, who may be interested, but the trustees of the employer's scheme do not approve a QROPS. With recent HMRC scares, you can understand their concerns."
Aside from concerns over legality and certainty, one participant said keeping pension arrangements in the UK is a hedge against the certainty of people moving back upon the death of a spouse.
Others said they were unable to offer QROPS advice or clients had no need for an overseas pension.
Coady agrees: "If you're advising someone in the UK, they have to be guaranteed they're leaving the UK in the next 12 months. Your traditional UK IFA wouldn't be exposed to that many people or any at all."
Tully says only certain advisers will be comfortable they understand the complexity of a QROPS. "People have to be aware of the tax rules confirmed in the UK, the country the person's moved to and the country the QROPS is in. When trying to work out the tax situation and depending on what three countries are involved, the end result will be different [per client]."
A third (32%) saw an increase in interest, but clients are not using them. One adviser said few clients have knowledge of QROPS. Clients are interested but do not commit, said another.
Less than one in ten (8%) saw an increase in business. Coady says this is due to dissatisfaction with group schemes, people keen to make their own decisions instead of relying on financial institutions, and the lure of tax and inheritance advantages.
Our research has exposed a gulf. People retire abroad but are not necessarily taking advice or planning in the fullest way they can. Despite the nervousness surrounding certain products such as QROPS, they should be considered.
According to Department of Work and Pension research, 1,182,050 people receive their state pension abroad and as more baby boomers retire, this figure will increase. Advisers have to make sure they're ready.
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected