One of the biggest talking points to come out of the Coalition Government’s finance re-jig is the subject of pensions. The news that pension ages are to rise sooner, for both men and women, has been met with much disapproval, people simply don’t like the idea of working into their later years.
Labour’s previous plans had the national pension age for men rising to 66 in 2026, but now the Coalition has pushed that forward by a whole decade, earmarking 2016 as the appropriate time for the increase. Along with the raises, plans are already in motion to have the eventual age go up to 70.
The main reason such advances are being made is the fact that people are living longer. The Government cites increased life expectancy as the main reason why retirement ages need to rise, people are living for longer and thus creating a bigger strain on the Governments current pension resources.
But with all this talk about pensions and retirement ages there’s an important issue that people may forget-
You are free to retire whenever you want.
There are no laws or legislations that dictate you must work until a certain age, when you retire is completely up to you, the rules the government lays out are of course for their own pension plans, if you have the means to bypass this then the only restrictions on when you retire are your own personal savings.
As an expat you will actually find that your world works more in favour of an early retirement than that of your home resident friends. As with most things in our modern world it’s all about money. To enjoy a nice, relaxing and enjoyable early retirement you will need to be able to support yourself, free form the restricting shackles of a Government pension.
So if the idea of retiring early, spending more time with your loved ones, enjoying your hobbies and generally relaxing after a life of hard work appeals to you, then read on.
The first thing to think about is planning. To succeed in any sort of long term goal you must always have a well thought out plan, and this counts double for financial matters. Whatever age you are, evaluate your lifestyle and then think about the lifestyle you’d like to have when you retire. Establish yourself a goal, perhaps set the age at which you’d ideally like to retire, and then plan out how to reach that goal. Take into consideration things like current costs, mortgages, child care, that may not be a factor in later life. If you pay off your mortgage at a young age you could retire and not have to worry about making those payments.
So start by deciding how much money you’ll need to retire comfortably, and then work to reaching that goal. Perhaps speak to a finance adviser as they could help you with your plan, and maybe point out some good investment options that could see your savings grow.
Next, it’s time to start thinking about the advantages and benefits you get from being an expatriate. One of the biggest plus points of expat life is the pension alternative known as a QROPS. A QROPS, standing for qualifying recognised overseas pension schemes, is a special type of HMRC approved pension transfer available to people who have moved out of, or are seriously planning to leave the UK. Essentially a QROPS is an offshore pension, you take your existing pension and transfer it out of the UK into an offshore jurisdiction. Taking out a QROPS has many advantages over a standard pension, anyone over the age of 18 and under the age of 75 can take one out. QROPS gives you much more freedom with regards to investment, and you don’t have to purchase an annuity. If you chose to retire early you could utilise your QROPS and benefit from huge tax benefits, depending on the country you are in you could potentially access a tax free savings pot.
Basically a QROPS is a must have for the early retiring expat.
Similar to the QROPS is the QNUPS. Standing for Qualifying non-UK pension schemes, the QNUPS is a recently introduced QROPS alternative. The main difference is that the QNUPS is exempt from UK taxes after death where as the QROPS requires five years of non-residency. The QNUPS is tailored to receive transfers from existing wealth and other non-pension assets, the QROPS is for transfers from existing pensions only. Due to its new nature the laws surrounding a QNUPS are not completely clear, but a better idea could be gained by speaking to an independent financial adviser.
Expats in general have many more options to save money and bypass tax, giving them more scope to preserve wealth and enjoy an early retirement. Offshore banking often comes with savings schemes and tax benefits that you wouldn’t be able to get from onshore or high street banks.
Apart from the options that come with offshore banking and pensions, there are a number of other things that will help you achieve your goal of an early retirement. As mentioned earlier the quicker you pay off your mortgage the more time you’ll have to enjoy a debt free life, and this also counts for all your other debts. Endeavour to clear all your debts as soon as possible and your retirement balance will be healthier.
To ensure you have the necessary funds to sink into a nice early retirement you may have to take a look at your life now with a view to making some sacrifices. Relax on the spending and the luxury items, look into other places where you may be able to save money, like phone bills and home expenses, remember, it’ll all be worthwhile come your early retirement!
Finally, an important aspect of sound financial planning is reassessment. As the years go on things will change, both in your life and the financial world, this is another reason why liaising with an IFA is very important, they will work with you all the way, helping to establish and modify the plan to suit your specific, and changing, needs.
Get in touch with an IFA here.