Why living on your pension in Portugal beats staying in the UK

A sixth consecutive year of rises above 3% means UK pensioners can look forward to the full new state pension breaking the £13,000 mark in 2027. This includes any retired expats receiving their pension in Portugal and elsewhere in the EEA.

Thanks to the UK’s triple lock system, UK state pensions are due to increase by 3.9% next year. In cash terms, this translates to a hike of £488 a year for the full new state pension. Currently worth £241.30 a week, from April this will rise to £250.70, equal to around £1,086 a month or £13,036 a year. Meanwhile, the old basic state pension will climb to £192.10 a week (from £184.90), or £832 a month and £9,989 a year.

The UK’s triple lock system guarantees an annual uprating for the state pension. In its current format, it pegs increases to the highest of CPI inflation, earnings growth or 2.5%. Prime Minister Andy Burnham recently guaranteed it until 2030. The figure used for 2027 is expected to be earnings growth (3.9%). From 2030, a reformed system proposed by Labour – subject to it winning the next general election – would make annual rises less aggressive.

Key takeaway: The full new UK state pension is set to rise 3.9% to £250.70 a week, or £13,036 a year, from April 2027 under the triple lock. Retirees living in Portugal get the same increase. The YOH Cost of Living Index puts a comfortable single lifestyle there at £861 a month, so the pension covers everyday costs – though property costs and exchange rate swings are not included.

Your UK pension in Portugal – how far does it go?

This rise should be welcome news for retirees moving to Portugal. Likewise, it’s a shot in the arm for expats already there and claiming their UK pension in Portugal. In short, having more sterling in your pocket will make the Portuguese lifestyle even more affordable than it already is.

A £13,036 (€15,250) pension also puts you ahead of the local population. State pensions vary significantly in Portugal, depending on contributions. According to Bank of Portugal analysis, the average monthly pension there in 2024 was €645. Other reports published this year put it at around €800 – either way it’s significantly below the UK’s state pension.

Better value than the UK – and comfortably!

Crucially, your monthly pension income goes much further than it does in the UK. According to the Your Overseas Home 2026 Cost of Living Index, Portugal is one of the best-value expat destinations. It’s second only to Spain.

An individual can get by comfortably in Portugal on £861 (€1,007) a month, according to the YOH Index. This makes it 29% cheaper than the UK, where an equivalent lifestyle costs you £1,218 (€1,425) a month. By comparison, Spain, top of the Index (32%), is only three percentage points better value. The Index covers 12 destinations. Portugal ranks ahead of expat favourites Italy (3rd), Greece (4th), Malta (5th), France (6th) and Cyprus (7th).

The Index compares 50 items or services in each country with their UK equivalents. These fall into six categories – groceries, running a home, travel and transport, leisure and eating out, personal spending and services, and healthcare basics. The Index excludes accommodation or property-related costs and private medical insurance – see below.

Triple lock outpaces Portuguese inflation

Based on the results, a monthly pension of £1,086 (€1,271) alone should cover your outgoings comfortably in Portugal. In the UK, it falls short. For a couple in receipt of two UK pensions and sharing living costs, the numbers look even better. Of course, for some with more expensive lifestyles this won’t be enough, while others might live quite happily on less.

Then there’s inflation, which is predicted to slow across Europe next year. Portugal’s rate is forecast to settle around 2.4%, so a 3.9% (UK) pension rise should still provide a nice little bonus for expats there.

Where Portugal offers the biggest savings

The YOH Index shows there is barely any difference between the cost of living in Spain and Portugal. Which country works best for you financially might well come down to your individual lifestyle and monthly spending habits – for some people, Portugal could feasibly be the cheaper of the two to live.

According to the data, Portugal is especially good value in four areas of day-to-day living. It takes the number one spot as the most affordable destination for personal spending and services. And scores almost as highly with a 2nd place ranking for each of travel and transport, leisure and eating out, and healthcare basics It is cheaper than the UK in every category of the Index.

Portugal takes the prize for shopping & spending on yourself!

Nowhere is cheaper than Portugal when it comes to spending money on yourself, whether buying clothes or getting a haircut. Its £46 typical monthly spend makes it top of the Index in this category and 44% cheaper than the UK (£84 a month).

Key to this is to shop locally. While Portugal has upmarket areas where the cost of amenities will be higher, you only need to head a few miles away or inland to smaller local communities and prices drop significantly. Other things considered include jeans, hotels, dog grooming and a men’s haircut.

Travel in Portugal is cheaper than most of Europe!

If you like getting out and about, you’ll be pleased to hear that Portugal’s £106 a month budget for travel and transport makes it the second-best value in this category. That’s 40% cheaper than the UK (£177 a month).

This category included items such as petrol, car hire, return flights to London and local public transport.

The price of eating out in Portugal is hard to beat!

Enjoying a meal out or evening drink in a local bar is an important part of Portuguese culture. So traditional establishments do their best to keep prices low and accessible to locals – find these and you’re in for a treat.

No surprise, then, that the country is also ranked second for leisure and eating out. Its monthly budget of £267 makes it 41% cheaper than the UK (£448). Other things considered in the Index included the cost of a coffee and croissant, Big Mac meal, cinema ticket, Netflix, newspaper, half-marathon entry and video games.

Cheaper than the UK is every category!

The fourth category where Portugal shone was basic healthcare. It ranks second in the Index with a monthly budget of £44, 6% cheaper than the UK (£47). Included in the analysis were dental check-ups, weight-loss drugs, nappies, painkillers and sun cream.

In other categories, Portugal’s typical monthly grocery bill of £177 makes it 18% cheaper than the UK, while the general cost of running a Portuguese home (£221 a month) is 11% less.

Factor in property, medical and other costs

A monthly budget of £861 (€1,007) is a useful guide to typical living costs in Portugal. The YOH Index does not take into account the costs that come with buying and owning a new home there. You’d need to calculate your monthly spend after any mortgage or rent payments. Also not included is the cost of private healthcare.

Other expenses that fall outside the Index could relate to your specific home, such as a swimming pool to maintain or community fees. If you live on a desirable golf resort or somewhere with lots of amenities, these can be high. All of which means just how far a pension of £13,036 a year will go will depend very much on your personal lifestyle. Portugal’s range of property and locations is wide and most regions have something for all budgets. Even the Algarve can be affordable if you look carefully.

Can you get residency with your UK pension in Portugal?

How much income you receive annually is also critical to helping you move to Portugal permanently. Most non-EU retirees or semi-retirees get Portuguese residency using what is known as the D7 visa. It’s aimed at people living on passive income rather than earnings from work.

A key requirement of this visa is being able to prove a minimum level of passive income. This can include pension(s), rental income and other investments such as dividends and interest. For a main applicant, the threshold matches Portugal’s minimum wage: €920 a month or €11,040 a year in 2026. To include a spouse or second adult on a D7 application, you need an extra 50% (€460) of income. Dependent children require an extra 30% (€276 each).

You might see Portugal’s minimum annual salary quoted as €12,880. This is because most workers are entitled to two extra monthly wage packets in the year, essentially a summer subsidy and Christmas subsidy. However, D7 eligibility uses the monthly wage figure.

Is a UK state pension enough for a D7 visa?

The good news is that in 2026 a full new state pension alone is comfortably enough. It meets the baseline income requirement for a Portuguese D7 visa. This makes Portugal one of the most accessible European destinations for UK and other foreign retirees.

Currently, a full old basic pension (£801 or €937 a month) just about meets the income requirements too. However, a swing in the exchange rate could change this. Don’t be surprised if you need to back this up with proof of extra income or savings. And 2027 won’t make things much easier. The Portuguese government has confirmed the minimum wage will rise to €970, while the old basic pension rises to around €974 a month.

Receiving your UK pension in Portugal – protect it from exchange rate movement

To maximise your pension’s spending power in Portugal, don’t ignore the effect the exchange rate could have on your monthly income there. UK-sourced payments, whether from pensions or other types of investment, will need converting into euros before arriving in your Portuguese bank account.

This means your income could be exposed to exchange rate movement, as well as expensive receiving fees from Portuguese banks. A month’s UK state pension of £1,086 could be worth €1,271 one month, based on a £1/€1.17 exchange rate. If the rate drops to £1/€1.15 the following month, your income in Portugal falls by around €22. That’s the cost of a lovely meal in a local restaurant. The higher the amount of sterling you move over from the UK each month, the bigger the potential difference in the amount of euros hitting your Portuguese account. For more on how transfers work, see Currency Transfer and Property Purchases Explained.

The best way to protect your money from this uncertainty is to use YOH’s currency transfer partner Smart Currency Exchange. You’ll secure competitive exchange rates and minimise bank charges. They offer clever ways of fixing your monthly euro payments in Portugal, by combining a forward contract with their regular payment plan tool. Your high street bank is unlikely to offer these.

Exchange rate applied: £1/€1.17

Information in this article is provided for general informational purposes only and does not constitute formal advice. Always seek professional advice before making decisions relating to financial and estate planning, inheritance and other related matters.