Updated 03 December 2020
If you dream of retiring to Australia, you’re not alone. There’s more to life Down Under than beaches and barbecues of course, but… we’d be lying if we didn’t consider that a big factor. But transplanting your whole life to the far side of the globe is a major task, and there are plenty of questions to address – such as how you’d access your UK pension.
Here we take a quick look at the main things you’d need to think about in order to retire to the Land of Oz.
Australia has long been a popular retirement destination for the ‘Poms’. In fact, the country is such a draw for pensioners that there are currently over 230,000 British expats claiming their state pension there. The first step of making the big move is to apply for a visa – and this can be the first big hurdle too.
The Australian government has now closed its specialist Investor Retirement Visa to new applicants, but there are still options available. If you have family ties to the country, you can apply for a Parent Visa, Age Dependent Resident Visa, Remaining Relative Visa, or a Carer Relative Visa. If none of these apply to you, you can look into the Retirement Visa Pathway, which sets out the eligibility criteria for achieving permanent residency. The Australian government has many visa options listed on its Home Affairs website, so it’s worth taking some time to familiarise yourself with all that might apply to you.
When you start to live off your pensions (whether personal, workplace, state pension or a combination of them), you’ll be adjusting to a new financial landscape. Your monthly expenses may not have changed much, but your income will tend to reduce by at least 30% (and perhaps more). This means that when you look ahead to the cost of living in retirement, you need to look at it from the point of view of someone with less money to spend.
Living in a big city like Melbourne or Sydney can mean monthly rental costs in the region of AUD$900 and upwards (it gets higher the closer you are to the beaches). You need to find out what you are likely to be paying in terms of fuel (though it’s cheaper than in the UK, about 66p a litre in July 2020) and utilities. The monthly cost of heating, electricity and water for an average city apartment will be over $100 AUD.
Healthcare is an important consideration too. Australia works on a system of universal medical cover called Medicare, and all taxpayers contribute 2% of their income. All Australian and New Zealand citizens are covered, as well as British Citizens travelling on a UK passport. However, this cover usually only applies to around 75% of primary care charges, so most Australians buy insurance to account for any shortfall. Be sure to factor this into your monthly expenses.
Renting a property is going to be a significant expense if you’re planning to retire to Australia, so you may want to look at your mortgage options instead. The first thing to note is that non-Australian citizens purchasing a property in the country need to get approval from the government, specifically the Foreign Investment Review Board. There’s a whole range of specialist mortgage brokers who work exclusively with people moving to Australia or applying for a loan from an Australian bank. You should be able to borrow up to 80% of the property’s value, but you’ll definitely need a source of income above and beyond your UK state pension, such as significant private pension savings or a good final salary pension.
Alternatively, you can look to get a mortgage from a UK lender. Many offer specialist products for people retiring in Australia or other countries. It’s worth speaking to a specialist mortgage broker about your options before committing to anything.
Receiving your state pension shouldn’t cause any difficulties if you retire to Australia. You can either keep your UK account and have your state payments paid into it, or have it paid into an Australian bank account.
You can also transfer your private UK pension to an Australian scheme if you want to. This could have a number of benefits, such as lower fees or management costs, and it could make managing your finances easier. You will not be able to transfer a NHS, teacher or police pension though – in these cases you can only continue receiving your income from your UK scheme.
In order to transfer your private pension, you will need to make sure your new scheme is HMRC approved. You’ll also need to be over 55 and not yet accessing your pension pot(s). Find out more about retiring abroad.
Another factor to consider is the tax landscape down under. Australia has some taxes that will relate specifically to you as a non-citizen moving over, especially regarding income tax. If you are planning to cover your monthly expenses and obligations primarily with your pension when you retire to Australia, it is important to understand how much you will be taxed.
Aside from income tax, which is charged at 32.5% for anyone earning less than AUD$90,000, you will be charged a pension levy. This tax applies to your UK state pension, so make sure you have accounted for this in your monthly expenses. Taxes ca be difficult to get to grips with, so talking to a specialist financial adviser is useful.
If you retire to Australia and continue to earn any additional income there, you will pay tax on it, and as a British expat you may not be entitled to the tax-free threshold that citizens are. This means you will be taxed on every dollar of additional income you make. You could also pay capital gains tax on any Australian assets you acquire while living there. You won’t be taxed on any non-pension income you make outside of Australia, such as investment capital growth or dividends.
The taxes you pay will depend on your legal status. If you are a permanent resident of Australia, you are considered as a full citizen and taxed as such. Again, it is always worth seeking out some expert guidance on exactly what position you will be in before you leave.
Retiring to Australia is a once-in-a-lifetime venture, and there are always big risks when you attempt something you’ve never done before. However, an experienced financial adviser may have helped numerous people to fulfil this dream. Find an IFA who has direct knowledge of the challenges you’ll need to face, including the practicalities of transferring assets and navigating the tax and pensions landscape. This way, you won’t find your life turned upside-down in retirement.
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