8 practical tips for Australians thinking about retiring in the UK

Category: News & United Kingdom

If you’re an Australian living in the UK, you may well have made the decision to retire here.

The key thing to remember is that a successful retirement takes careful planning. If many of your assets are still back in Australia, that’s an extra layer of potential complexity that needs addressing to ensure the transfer of those assets goes smoothly.

Here are eight things that should be a priority for you and should form a key part of your planning process.

1. Start putting your retirement plan together

If you have not done so already, now is the time for you and your spouse or partner to put together a plan for your retirement.

Your plan should include all the things you intend to do when you stop working, whether that is travelling, starting a new business, or spending more time with family.

This will give you a decent idea of how much income you will need, whether you still need to be saving, and if you need to make any changes to your lifestyle.

Another part of your planning should include deciding where you want to live. This may not be where you’re living now – especially if your current location is based on where you work.

You might decide that, at some stage, you’ll want to move back to Australia, so that also needs including in your plan.

Regardless of where you’re planning to live, you should ensure you are as debt-free as possible when you retire.

Credit card and personal loan repayments will make a real dent in your disposable income each month, especially if you’re no longer working. Clearing them should be a top priority.

2. Review your current pension arrangements

It’s likely that much of your income in retirement will come from your pension arrangements.

Make sure you have details of all your plans, including those in Australia, and get up-to-date values for each.

  • The UK Pension Tracing Service can help you find any UK pension details you may have lost track of.
  • You can trace Australian super funds through the lost super search line that the Australian government set up in 2019 for people to use to help find their funds.

You won’t be able to transfer your super to the UK, but there are ways of withdrawing your fund to ensure you pay as little tax as possible. You should speak to a financial planner to ensure you aren’t faced with an unexpected, and potentially avoidable, tax bill.

You might want to consider consolidating your UK pensions into a single arrangement and doing likewise with your super funds. This can make them easier to manage, as you will have a single plan in each country. But please note that consolidation is not appropriate in every instance, and we strongly recommend you get financial advice before going down this road.

3. Make a note of your other assets

As well as pension arrangements, don’t forget other assets – including those in Australia – that will form part of your retirement income.

These could include:

  • Investments such as shares or an investment portfolio
  • Money in savings accounts such as ISAs
  • Business interests in both the UK and Australia
  • Property in both the UK and Australia
  • Offshore and onshore bonds
  • Any potential inheritance you feel may be due to you in the future.

A key part of your planning process will be deciding how and when you’re going to access these assets to fund your retirement. We would strongly recommend you get expert advice from a tax specialist to ensure the process is conducted as tax-efficiently as possible.

You should also ensure that you consult with a currency exchange specialist to make sure you get the best possible exchange rate for your Australian dollars.

4. Do you have enough to retire on?

You’ve now established the level of income you’ll need to support your chosen lifestyle (point 1) and the assets you have to fund your retirement (point 3).

It just remains to balance one figure against the other to see if you’re able to retire.

You may feel that you’ll need to work longer to help boost your retirement fund before finally stopping work.

Alternatively, you might want to consider “phasing” your retirement and work fewer hours. This will entail you taking less income from your retirement fund initially.

A third option would be to review your plans for retirement to see if you need to adjust your planned lifestyle.

5. It’s never too late to maximise your UK pension contributions

Having done calculations to see if you currently have enough to retire on, you might need to consider making further pension contributions.

The tax relief on contributions in the UK makes them one of the most tax-efficient ways of saving money.

The government adds an extra 20% to any amount you personally contribute if you are a basic-rate taxpayer – that’s immediate growth on day one without you having to do anything.

Higher rates of tax relief make pensions equally attractive for those earning more than £50,000 a year.

Also, look to maximise contributions for your spouse or partner. Even if they have no earnings, they are still entitled to contribute £2,880 to a pension arrangement each year. This amount will be topped up to £3,600 with tax relief.

6. Check your UK State Pension entitlement

As well as your own pension arrangements, you may well also be entitled to a UK State Pension. The amount you receive will depend on the number of qualifying years of National Insurance Contributions (NICs) you have.

You can request a forecast to find out exactly how much your State Pension will be when you retire. You may be able to pay additional NICs to top up the pension you’ll receive in retirement.

The current State Pension of £9,339.20 (2021/22) is unlikely to be enough to provide you with a comfortable retirement, but it’s a handy guaranteed underpin when considered alongside other income.

If you return to Australia at any time, you’ll still receive your State Pension, but it won’t be subject to automatic escalation.

7. Check your investments

How you choose to invest your pension fund can make a big difference to the ultimate size of your fund when you come to retire.

Diverse types of investment – such as equities, gilts and bonds – have different levels of investment risk. You’ll need to get the right balance between risk and reward when managing your investments.

Low-risk investments are less likely to suffer any dramatic downturn in value but are likely to deliver lower investment growth in the longer term. A higher element of risk can potentially provide higher returns but can also be more susceptible to short-term volatility and sudden loss.

8. Ensure you have an emergency fund in place

Regardless of how your pension fund and savings are invested, stock market turmoil can have a big impact on the value of your investments – even if it’s only for a short period.

Taking income from your assets earmarked for retirement at this time can be expensive, as you’re cashing in more investment units, and therefore missing out on future growth.

One way to avoid this is to have an emergency cash reserve that can provide you with an income while you wait for markets to recover. Most retirement experts recommend that you have between one and three years’ income in an easy-to-access account.

Get in touch

At bdhSterling, we have a wealth of experience in helping clients to plan their retirement. And with offices in both the UK and Australia, we’re ideally placed to support and advise Australians thinking of retiring in the UK.

Get in touch to find out how we can help you.