Many Brits approaching retirement dream of moving to the continent. But Brexit has thrown a spanner in the works. Since the referendum, sterling has plummeted against a basket of foreign currencies, including the euro, and question marks loom over expats’ ability to settle elsewhere in Europe.
Things look even more chaotic when it comes to financial planning.
Sterling is volatile
Currently, £1 will buy you around €1.19, down sharply from €1.42 in November, and reducing UK pensioners’ purchasing power abroad.
If you’re thinking of selling your UK home to buy a property abroad, it would be wise to hold off. The UK’s housing market is facing a slowdown and currency swings are likely to persist until after Brexit negotiations have concluded.
Under these circumstances, liquidating large UK assets and converting the cash to buy a property abroad could prove an expensive mistake.
HMRC may change the rules around transferring your pension abroad
There is also uncertainty over the transferral of pensions abroad.
Since 2006, pensioners migrating to countries in the European Economic Area (EEA) have been able to transfer their UK-registered pension scheme to a similar one in a different jurisdiction, under the Qualifying Recognised Overseas Pension Scheme (QROPS). This allowed expats to receive pension payments in euros, for example, but also gave them the freedom to select the most favourable jurisdiction for their pension – such as Malta or Gibraltar – and avoid unwelcome limits such as the UK’s lifetime allowance.
Read more: Has government policy protected pensioners at the expense of the young?
According to Old Mutual Wealth’s Rachael Griffin, Brexit provides HMRC with a good opportunity to change this. “QROPS are likely to remain available to UK pensioners, but HMRC may modify the rules to prevent them from transferring their QROPS to any jurisdiction except the one they’re moving to,” she says.
Your state pension could fall in value
Brits’ state pensions on the continent may also be at risk. Before now, any retiree moving to a country within the EEA has seen their state pension rise in line with UK earnings, inflation or 2.5 per cent a year – whichever is highest – as part of the government’s “triple lock”.
The jury’s out on whether the costly triple lock will last. But even if it does, the UK may have to negotiate with individual EU countries to guarantee British expats’ state pensions continue to rise at this rate, says AJ Bell’s Tom Selby. “A 65 year old retiring on the flat-rate state pension of £155.65 per week is likely to lose around £50,000 in total, assuming they live for 20 years with annual pension increases of 2.5 per cent.”
Read more: Pensions under threat from Brexit
A reciprocal deal on healthcare has yet to be reached
Healthcare is another area of concern for pensioners.
Under current rules, Brits can access health services anywhere in the EEA at the same cost as a local. New reciprocal arrangements are likely to be agreed between the UK and other member states, but there is no guarantee. The Centre for European Reform’s John Springford has suggested that countries like Spain could demand the ageing and burdensome British diaspora pays for itself.
Currently, Brits visiting Spain can receive free access to Spanish GPs, and the NHS will pay for their hospital treatments. But the Spanish government shoulders the burden of hospital treatments once those people become permanent residents.
"The British position has long been that government expenditure must be reserved for immigrants who are in work, or have long-established ties to the member state in which they live," wrote Springford. "Many British emigrants to Spain fail that test. [...] To avoid the charge of hypocrisy, Britain could agree to pay Spain to cover healthcare costs, accept that migrants should pay for it themselves, or have Britons risk their health by travelling home to be treated by the NHS."
The prospect of paying for healthcare access in their frailest years is something many retirees would consider unaffordable. It would be sensible for Brits to wait and see whether an agreement on reciprocal healthcare provision can be reached before making the move abroad.