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Posted by portugalpress on February 15, 2018

When you feel secure, life is easier. It’s a fundamental in human existence. If you have money worries, it can lead to some powerful feelings of anxiety and insecurity. So, if you’re a UK expat living in Portugal and want to know what is the most prudent thing you can do with a UK pension to secure your long-term financial prosperity, both in terms of your own future needs but also in terms of those who will remain even after you have departed this earth, what can you do?

Optimising your pension arrangements in the right way can mean the difference between a comfortable life and one of uncertainty and enforced frugality for both you and your family. However, as an expat living in Portugal, you will have a number of tax, legacy planning, inheritance and residency issues to plan for. This means you should approach your pension planning with care, ensuring you receive advice from an established professional.

The end of the rainbow

Defined Benefit Schemes used to be seen as a kind of pot of gold. Aspiring expats believed, sometimes correctly, that all they needed to do was keep working until retirement age and then they would be able to cash in and enjoy a sun-soaked and secure retirement.

However, following on from various pensions scandals – for example, Maxwell and BHS – the glory days of the Defined Benefit and Final Salary schemes would appear to be over, even with the limited protections of the Pension Protection Fund.

Fortunately, expats do have plenty of pension choices if they wish to transfer their defined or final salary benefit into another type of vehicle. Depending on individual circumstances and financial goals, either a SIPP transfer or QROPS transfer may be preferable for the British expat living in Portugal.

Making sense of your pension options

Let’s take a brief look at just what it is each of these pensions offers:

■ SIPPs: As the name would suggest, a Self Invested Personal Pension transfer gives expats the capacity to choose how their money is invested while offering an enviable level of tax efficiency and legacy planning. A SIPP is truly an international pension transfer; it can be utilised by residents in Portugal or indeed almost anywhere else and money can be invested just about anywhere in the world. However, a SIPP is only as good as its investments, so unless you are Warren Buffet, it is best to seek advice about how and where to invest your SIPP.

■ QROPS: A Qualifying Recognised Overseas Pension Scheme transfer allows savers the possibility of increased flexibility in regards to their pension planning. For example, pension benefits can be passed to chosen heirs and income can be taken in Euros instead of Sterling. However, it is worth noting that QROPS benefits vary from provider to provider, so it is always best to take advice to ensure that the scheme you choose is the right one for you.

Your pension and Portuguese tax

Portugal and the UK have a taxation agreement. This gives Portugal exclusive tax rights on most UK pensions and means that if you are a UK expat in Portugal, you will most probably be free of UK tax on your pension income. However, Portuguese income tax rates can seem punitive, so it is best to seek advice on how to optimise your pension and tax arrangements in Portugal. Luckily, however, non-habitual residents (NHRs) can draw their pension income tax-free for their first 10 years of residence.

Blacktower, helping you ensure pensions security

Blacktower can help you make the most of your pension by ensuring that your planning aligns with your financial goals and personal lifestyle. For more information about how we can help you, contact our Algarve or Lisbon office today.

By Manuela Robinson

Manuela Robinson is the Joint-Country Manager of Blacktower in Portugal. With offices in Quinta do Lago, Cascais and representation in Madeira. | 289 355 685

Blacktower Financial Management (International) Limited is licensed by the Gibraltar Financial Services Commission. Licence 00805B. Blacktower Financial Management Limited is authorised and regulated in the UK by the Financial Conduct Authority.