Pension advice in Portugal: Six tips for getting it right first time
With more options than ever for what you can do with pensions, quality advice for expatriates is crucial. How can you establish the best outcome for a financially secure retirement in Portugal?
Brexit makes these particularly interesting times for UK pensions. With expectations that some current opportunities may not survive after the UK leaves the EU, the clock is ticking to take full advantage of today’s freedoms.
While any financial transaction brings a degree of risk, pensions are often the cornerstone of a comfortable retirement, so getting it wrong here can be disastrous. Indeed, we are sometimes approached by people who have made the wrong pension choice with another firm and have found it very costly to rectify.
These six tips can help you get it right first time:
1. Check your pension adviser is regulated by the UK Financial Conduct Authority (FCA)
Regulated financial companies have to meet certain standards and act in the best interests of their clients. While taking regulated advice is compulsory for people looking to transfer ‘final-salary’ pension benefits worth £30,000+, the FCA strongly recommends it for anyone considering their pension options. A simple online search of a provider’s full name plus ‘FCA’ should reveal more about their relationship with the regulator and link to their record in the Financial Services Register.
2. Consider all your options
Many expatriates benefit from transferring UK pension funds to a Qualifying Recognised Overseas Pension Scheme (QROPS). Advantages include more flexibility with withdrawals, such as the option to take Euros or Pounds, and freedom to pass on benefits to heirs other than your spouse. However, a QROPS will not suit everyone and is not always the most tax-efficient solution. With expert planning, pension funds can potentially be restructured in arrangements that provide additional tax benefits for Portuguese residents, so take time to explore alternative options.
3. Get personalised, cross-border tax advice
The Portuguese tax treatment of pensions differs to the UK and can be highly beneficial. For example, if you are not yet resident in Portugal, you could enjoy tax-free pensions through the non-habitual residents (NHR) regime for the first ten years. Outside of NHR, it may be possible to receive 85% of UK pensions tax-free, but the rules are far from straightforward. For some expatriates, it is more beneficial to re-invest UK pension funds into a tax-efficient Portuguese-compliant life assurance bond, for instance, but there is no one-size-fits-all solution.
UK-based pension advisers are unlikely to have in-depth understanding of the Portuguese tax landscape nor the cross-border expertise required to make the most of the opportunities available. This can result in a much higher tax bill than necessary, so take local, personalised advice for the best results for your unique circumstances and goals.
4. Beware of pension scams and unregulated investments
Be extremely cautious of ‘advice’ from a company that has cold-called you, and never sign anything under pressure. Be especially wary of claims of unusually high or guaranteed returns, and opportunities to access your pension before the age of 55. Generally, if it sounds too good to be true, it probably is, and once you transfer your pension, it is too late. You could end up losing some or even all of your pension funds, and face a large tax bill as well as penalty fees. Make sure you check your provider’s credentials, including their cross-border experience and understanding of Portuguese taxation. Remember: with unregulated companies, there is no recourse if things go wrong.
5. Research other peoples’ experience
Testimonials, particularly word-of-mouth recommendations from people you trust, can provide reassurance and indicate that a business is doing things the right way. Look for consumer reviews, ask around your local community and follow up references where possible. Be mindful, however, that other peoples’ situations might be quite different to yours – what works for them may not necessarily work for you.
6. Look at the whole picture
Pensions should form just part of your overall financial plan. Your adviser should look at your pensions in the context of your unique circumstances and wider situation – including residency, your other assets, tax and estate planning – to help secure the best outcome for you and your family.
Deciding what to do with your pension could be one of the most important financial decisions you make.
While you should take the time to get it right, keep the Brexit countdown in mind. With many predicting that the UK could introduce tax penalties on overseas transfers and limit how expatriates can access their UK pensions post-Brexit, now is the time to review how you can best secure a prosperous retirement in Portugal.
Link here for The AIPP Guide to Buying in Portugal written in association with RICS
Link here for the Tax Guide to Portugal by Blevins Franks
Link here for the Residency and Brexit – Key Steps for Portugal by Blevins Franks
Our thanks to The Alliance's official partner, Blevins Franks, for this article.
Blevins Franks are the leading international tax and wealth management advisers to UK nationals living in Europe. With offices in the UK and across France, Spain, Portugal, Cyprus and Malta, we have over forty years’ experience in providing cross-border tax, pensions, estate planning and investment advice to British expatriates throughout Europe.
Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.
Blevins Franks Financial Management Limited (BFFM) is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Where advice is provided outside the UK, via the Insurance Mediation Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of the UK. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts and companies. Blevins Franks Tax Limited provides taxation advice; its advisers are fully qualified tax specialists. This promotion has been approved and issued by BFFM.
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