Many people assume that the retirement income they built over decades will simply transfer smoothly once they’ve moved abroad. In practice, that assumption can be costly.

“Pensions are rarely as straightforward as people think once they cross borders,” says Jake McLaughlin, Executive Director of deVere Portugal, part of deVere Group advising more than 80,000 expatriate clients globally.

“The timing of withdrawals, the structure of the payments, and the country in which income is received can all affect how much people actually keep. Getting it right requires forward planning, not guesswork.”

Tax depends on residence and documentation

A major source of confusion for expats stems from how pension providers handle tax. When no formal tax code or instruction exists, many providers automatically withhold income tax at the source. This can lead to substantial deductions that may take months to reclaim.

“The process is highly administrative,” McLaughlin explains. “If your pension is paid from a foreign provider, that country’s tax authority may assume you’re still resident there unless you can prove otherwise. The only way to avoid double taxation is to secure the correct tax code or exemption before taking any income.”

He notes that international tax treaties determine where pension income should be taxed, typically in the country of residence. “Portugal, like many nations, has agreements designed to prevent double taxation, but those benefits aren’t automatic. You need evidence of residence and supporting forms submitted before your provider can pay income gross.”

Emergency taxation and how to prevent it

Without proper coding, some providers apply what’s known as an emergency tax rate. This system assumes that the payment received is the first of many equal monthly amounts, pushing income into the higher or top tax bands. “That can mean losing 40 or even 45% of your payment upfront,” McLaughlin says. “It can eventually be reclaimed, but it’s an unnecessary delay that could easily be avoided.”

Setting the correct code early and coordinating between pension administrators, local tax authorities, and advisers prevents those errors. “Once the right status is in place, the income can be paid efficiently, reflecting the correct tax treatment in Portugal rather than the default from abroad.”

The five-year rule

Expats who move abroad and later return often face another challenge — the so-called “temporary non-residence” rule. In some jurisdictions, returning within five years can make earlier pension withdrawals taxable retroactively.

“People sometimes move abroad, take a lump sum or drawdown, and then go home,” says McLaughlin. “If they re-establish residence too soon, that income can suddenly fall back into the tax net. It’s a small detail that can undo careful planning. Professional guidance on timing can make all the difference.”

Consolidation makes sense

A typical expat may have several pension schemes from different stages of their career, often in different countries. Each comes with its own fees, currency exposure, and investment approach. Over time, that complexity creates inefficiency.

“Consolidating pensions doesn’t just simplify the paperwork,” McLaughlin explains. “It can reduce costs, improve transparency, and align investments with the currency and income needs of your new life in Portugal. Managing everything in one coherent structure also gives far greater control when it comes to drawdown.”

He adds that pensions are investment vehicles, not savings accounts. “The performance of your portfolio inside the pension has a direct impact on how long your money lasts. Reviewing asset allocation, risk, and costs regularly is crucial, especially in retirement, when capital preservation becomes the goal.”

Inheritance implications are shifting

From 2027, unused pension funds in some countries will become subject to inheritance tax for the first time. For international retirees, that change could have significant consequences.

“Many expats have relied on pensions as a way to pass wealth efficiently to family,” McLaughlin says. “This advantage is being eroded. There’s still scope to plan around it, particularly for long-term residents abroad, but the options narrow with time. Acting early allows you to structure your estate in a way that protects both income and inheritance.”

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Clarity now means comfort later

McLaughlin believes the single biggest mistake is waiting until the first payment to seek advice. “By that stage, the structure is often set, and the tax implications are already in motion,” he says. “Taking the time to get residency confirmed, codes issued, and consolidation completed before income starts flowing means you’re in control from day one.”

He adds: “Portugal offers expats a stable and attractive base for retirement. The legal frameworks are clear and the tax agreements are there to be used, but they only work for those who plan ahead. Getting expert, cross-border advice isn’t a luxury; it’s part of protecting your future income.”

For the growing expat community, that clarity can mean the difference between a secure retirement and an expensive surprise.

by staff reporter