Thursday, 1 February 2018

Thursday, 1 February 2018

What can expatriates in France do with their UK pension in 2018?

What are today’s options for expatriates in France with UK pensions and what can you do to ensure financial security in retirement?

When it comes to pensions, your long-term financial security is at stake, so take care to do what is right for you and your family. Expatriates also need to consider the tax rules and implications in France.

Start by understanding the options available for different pension types.

‘Defined contribution’ or ‘money purchase’ pensions


These pensions are made up of what you have paid into the scheme alongside employer contributions, tax rebates and investment growth. Examples include individual or group personal and employer pensions and Self-Invested Personal Pensions (SIPPs).

Since the pension freedoms of 2015, members of these schemes can usually do the following from age 55:

  • Take the whole fund as cash – 25% (the ‘Pension Commencement Lump Sum’ - PCLS) will be tax-free in the UK.
  • Make cash withdrawals when you want – unless you have already taken the PCLS, a quarter is free of UK tax each time.
  • Take regular income through ‘flexible drawdown’, leaving the remainder invested.
  • Take a secure, regular income for life through buying an annuity
Expatriates also have the option to transefr Uk pension funds to a Qualifying Recognised Overseas Pension Scheme (QROPS). QROPS benefits include flexibility to pass pension benefits to chosen heirs and to take income in Euros instead of Sterling. Once in a QROPS, funds are protected from lifetime pension allowance penalties and future UK taxation.

However, QROPS benefits and rules can vary between providers and jurisdictions, and a 25% UK tax charge applies on transfers to QROPS outside the European Economic Area (EEA) or Gibraltar. As transferred funds remain liable for five UK tax years, you risk being penalised if you become tax resident in a non-EEA jurisdiction within that period. It is important to take professional advice to first establish if transferring is suitable for you and then navigate the complex options.


‘Defined benefit’ or ‘final salary’ pensions
Here, your employer guarantees a proportion of your salary for the whole of retirement. As benefits last a lifetime and are often generous, these are viewed as ‘gold-plated’ pensions.

While you cannot usually withdraw cash from these pensions, you can transfer it to a defined contribution scheme or a QROPS. Traditionally, this has been considered less attractive than drawing a guaranteed pension for life. However, today, some struggling providers are tempting members to cash-in with ‘transfer values’ of up to 40 times the annual benefits due at retirement. Although a one-off sum could potentially provide a retirement income that exceeds the original annual payment, it is crucial to fully understand the consequences before giving up ‘gold-plated’ benefits.

Whatever type of pension you have, consider certain issues before making any decisions.


Taxation
While a quarter of a defined contribution scheme can be taken tax-free in the UK, French residents are liable to French taxation at the income tax scale rates up to 45%. Only withdrawals prompted by an ‘accident of life’, like invalidity, unemployment or death of a spouse, are exempt.

It may be possible to limit French tax on a UK lump sum to just 7.5% - with an uncapped 10% allowance – in certain circumstances. Generally, you must take the whole fund at once, so you may be ineligible for this rate if you have already started taking benefits.

All pension income also attracts annual social charges of 9.1% (7.4% previously), unless you hold EU Form S1 or do not have access to the French healthcare system.


Making your money last

Having the freedom to withdraw or transfer your pension does not mean that you should. You may even be better off taking no action at this time. If you choose to take some or all of your benefits as cash, make sure you have a plan to fund your long-term future that suits your personal circumstances and goals.

The threat of losing it all


Pension scams have never been more widespread and sophisticated – Age UK estimates £43 million has been lost to scammers since April 2014. Generally, if an investment sounds too good to be true, it probably is. Once you transfer your pension, it is too late.

Also, beware that many companies offering pension services are unregulated. Whether they aim to defraud you or not, unprotected investments risk losing your money, with no recourse if things go wrong.

Even amongst regulated providers, check for quality. The UK Financial Conduct Authority (FCA) found that less than half of those cashing in final salary pensions received suitable advice. Make sure your adviser takes account of your needs, objectives, personal circumstances and risk appetite to find a tailor-made solution for you and your life in France.

Getting it wrong could have serious and unexpected consequences. Take the time you need to do your research and establish your best approach for a prosperous retirement.



 

Article courtesy of Blevins Franks


Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice
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