Retirement plans in sunny Portugal.jpg

Retirement plans in sunny Portugal


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EVERY YEAR, thousands of Britons head off to warmer climes, such as Portugal and Spain in search of a happy retirement.

There was a time when this not only meant extra sunshine but also money to spare, as the cost of living here was a lot less than the UK.

It is true that, provided you are sensible, eating out can still be a lot less expensive in Portugal and there is no disputing that water rates are a fraction of the UK – a matter that I still find astounding!

However, petrol prices are very similar and I am very sure every reader is aware of the cost of buying a Portuguese motor car!

Once you add in the extra expense of health insurance and the occasional flight back to see relatives, I am not so sure that it isn’t just as expensive to retire here as in the UK.

So it makes sense to take as much care of your finances as if you were in the UK.

Recent reports claim that UK individuals will only have an income of 7,696 pounds sterling rather than the required amount of 16,201 pounds sterling.

It is reported that the average pensioner couple’s income from private pensions is 7,696 pounds sterling per annum, which is 8,505 pounds sterling short of the ideal pension, which the company calculates to be two-thirds of the average final salary.

According to the Office for National Statistics, the average income for Britons is 24,301 pounds sterling, making the ideal pension income 16,201 pounds sterling.

It is therefore essential that people coming to retire in the Algarve make the most of their finances. Here are some essentials for a happy retirement.


Make sure that upon becoming non-UK resident, you finalise your tax position in the UK.

Otherwise you run the risk of being taxed twice with all the hassle of recovering any overpaid tax.

There is help available from including all the forms you need to notify the UK Customs and Revenue of your move overseas.

Ensure you file your Portuguese Tax Return.

This will probably mean seeking the services of a competent Portuguese accountant who will make sure you receive any allowances due.


If you have a private pension already in payment, there are definite tax advantages in Portugal.

For pension income that is paid as an annuity or income drawdown, 85 per cent of each payment is considered to be return of capital and therefore tax free.

The position for superannuation scheme income is less clear, with most accountants agreeing that the entire payment is potentially taxable under Portuguese rules.

If you have a private pension fund from which you haven’t yet started to draw an income, seek the advice of a competent independent adviser to ensure you maximise the benefits available.

By transferring the fund to another insurance company, you may be able to get a higher level of annuity income.

You may be eligible for an enhanced annuity if you have a medical condition which reduces your life expectancy.

A Self Invested Personal Pension (SIPP) may offer a more flexible and higher income for you in retirement.

Ensure you maximise any tax free cash allowance.

Also, although not widely available at present, there is a new type of “off-shore” pension scheme being developed which may allow you to take 100 per cent of your UK pension as a tax free cash sum.

Therefore, it may be prudent to talk to an expert before taking action, especially if your fund is in excess of 100,000 pounds sterling.


Ensure your investments are tax efficient and ahead of inflation.

Most pensioners rely on capital savings to provide additional income in retirement.

It is important therefore that the real value of this capital is maintained in line with inflation.

Otherwise, the amount of income that can safely be taken will reduce.

The problem is that none of us know how long we will survive or what our future financial needs will be.

Historically, the value of money on deposit has not kept pace with inflation.

Also, deposit investments are nearly always taxed at source – even most offshore bank accounts are now required to apply a withholding tax or notify your tax office.

This means that the value of your capital will almost certainly reduce over time. Nobody knows how many years they will survive and whether the capital will outlast them.

However, there are special types of investment vehicles available to both UK residents and expatriates living in Portugal that can provide highly tax efficient investment in a wide range of asset classes.

These can offer a true hedge against inflation.

In addition, these plans have the ability to defer and reduce substantially the investor’s liability to tax on income and growth.

Don’t wait until your capital is depleted – talk to an adviser before it is too late.


In the same survey, when asked which source people expected to provide the single biggest contribution to their income in retirement, a high proportion also said they expected their property to provide much of the cash needed.

In the UK, Equity Release schemes have become increasingly popular as the value of residential property has rocketed.

While Portugal has lagged behind in this field, schemes are now available with more due to be launched in the coming months.

Again, it makes sense to talk to an adviser to see whether a scheme can help you provide any additional cash or income required.

Please contact Steve Rodgers of Blacktower Group for further information. Call 289 355 686 or email [email protected]