Major Issues to Consider when Retiring Overseas
Almost without exception we believe that any Australians retiring overseas should seek financial advice before doing so. We consider retirement overseas more exhaustively elsewhere, but consider the following issues:
Access to Superannuation
"Many years ago" it was possible to access your superannuation as a lump sum, prior to meeting the normal preservation age/conditions of release conditions if it was your intention to move overseas on a "permanent basis". That flexibility no longer exists and there is no provision to simply transfer your super overseas, except with the narrow exception of transfers to New Zealand and into KiwiSaver accounts.
Early access to superannuation is available to individuals who have been working is Australia on certain qualifying temporary visas as a Departing Australia Superannuation Payment (DASP). No tax applies to the tax free component of the fund (unlikely unless non-concessional contributions were made) and tax at a rate of between 35% and 65% applies to the remainder of the fund; the higher rate applies to individuals on working holiday visas.
Early access is not available if you are an Australian Citizen, an Australian Permanent Resident, a New Zealand Citizen or for some other reason have an option of retiring in Australia and have access to the age pension. In that situation you will typically not be eligible for payment of your superannuation benefits until you have reached your preservation age and met a condition of release - in other words normally on retirement post 60.
Taxation of Superannuation
While your superannuation income or lump-sum payments might be tax-exempt in Australia, that may not be the case in the country in which you are resident overseas. Depending on the country in which you are resident, there may be a double taxation agreement between Australia and your country of residence which determines taxing rights, the country may not levy any tax on your income or you may be subject to full marginal tax, with or without allowance for that part of the payments constituting a return of capital. Some countries may levy a wealth tax on your superannuation balance and others may seek to tax your superannuation earnings even before you begin to draw on your fund.
Obviously, you should seek professional tax advice in advance of any permanent or long term move overseas to establish how any income will be taxed - and certainly prior to any initial withdrawal of funds.
Except in relation to countries with which Australia has a Social Security Agreement, you will need to be resident in Australia on the date in which you qualify for an age pension. If you are resident overseas and return to Australia in order to lodge a claim for pension, which is then granted, you cannot usually take that pension outside Australia if you leave again within 24 months. These restrictions are in place in order to discourage people from simply coming back to Australia, obtaining a pension, and leaving again.
This can be a complex area and the involvement of a financial planner,or at the minimum a discussion with Cenrelink, is strongly recommended.
Very few retirees contemplate access to comprehensive health insurance when considering a move overseas. Unless retirees are moving to a country with a well developed public health system, to which they have reasonable access, then they need to make provision for International health insurance. Most importantly, that health insurance needs to have provision for medical repatriation cover, preferably back to Australia.
Unfortunately, no Australian insurers currently provide health insurance cover for retirees. Comprehensive insurance is available through International insurers but the costs can be very high, and indeed we have seen premium quotations exceeding $US100,000 per annum for overseas retirees in their 80s. The alternative is to arrange local health insurance, if quality care is available, and separately arrange repatriation cover - again, if available.
While some retirees do use travel insurance, this carries some risks and care is advised. For example, travel insurance may not be applicable if you are resident in another country other than Australia, and it can be subject to a range of exclusions - particularly in respect of pre-existing conditions.
Our clear view is that if you cannot arrange access to good quality public or private health care in your country of retirement, or afford international health insurance with provision for repatriation to Australia or other quality health insurance, you should not retire abroad. The risks are too significant to ignore and the recent corona virus pandemic has highlighted just how unprepared many Australians living overseas were in terms of medical cover.