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Moving your pension to France
Robert Brealey, Pension Consultant at Siddall Financial Services, explains the implications of transferring your pension to France
The obvious reason for transferring your pension fund to France is that it will allow your pension income to be paid in euros. But what are you giving up by transferring? In the UK, people can retire their pensions at any age from age 50 (55 from 2010), and at retirement 25 per cent of the fund is available as a lump sum (which is tax free in the UK). The rest of the fund must be used to provide you with an income. The majority of people opt for annuity purchase, which is where the fund is exchanged for a guaranteed income payable for life, no matter how long you live. Various conditions can be added to annuities, such as a spouse's pension so that the income continues in the event of death, an increasing pension, but all of these reduce the level of income that the annuity will provide (as it means the insurance company is taking more of a risk).
The alternative to annuity purchase is income drawdown, where, basically, income can be taken from the fund (up to a maximum amount) and the rest of the funds remain invested (whereas with annuity purchase you lose your right to the fund immediately), but as the fund can go up or down (dependent on how the investments perform) the income will also fluctuate. This is a specialist area and advice should be sought.
At present benefits from French pension schemes must be paid in the form of an annuity at state retirement age, and there is no availability of a lump sum. In addition to this, annuity rates are linked to interest rates – the higher the interest rate, the higher the annuity. But on the continent the interest rates are lower than here in the UK, so, all things being equal, an individual is likely to end up with less income in France. There may also be guarantees contained within your UK benefits – particularly if you have benefits in a Final Salary scheme (where your pension is linked to your years of service and salary), or certain old-style personal pension plans. By transferring you would lose these potentially lucrative guarantees.
But what should you do if you feel that the transfer of your benefits to France is appropriate? First, you should make sure that your UK scheme is happy to transfer to a foreign scheme and the scheme you want to receive the money has registered with the Inland Revenue to become a Qualified Recognised Overseas Pension Scheme (QROPS). A transfer from a UK scheme to an overseas scheme is possible, but only if the receiving scheme has registered to become a Qualified Recognised Overseas Pension Scheme (QROPS).
To be a QROPS a foreign scheme must meets certain criteria, and there are some onerous requirements on a QROPS'. There will be some forms that each scheme has to complete for the other, and the process can take several months. Given the current restrictive nature of pensions in France (compared to the UK) the majority of people prefer to keep that flexibility (such as pension commencement lump sum) and control over when they can elect benefits, and therefore keep UK pension funds in the UK, but we would recommend that you obtain specialist advice as everybody's circumstances are different.
If your funds remain in the UK, be careful when electing benefits as the French tax authorities do not recognise the lump sum in the same way as the UK authorities. Since Private Pension funds in France must be used to purchase an annuity, the authorities reserve the right to consider any payment from a fund as income and tax it accordingly. However, we have had conversations with various tax offices and have had their verbal agreement that this lump sum should not be taxed, but they would not confirm this in writing.
There are some UK products that can offer income payments in euros (via a Self Invested Personal Pension) for individuals resident overseas, which is the best of both worlds – retaining the plans in the UK (with literature in English, etcetera, and regulated by the Financial Services Authority) but with income payments in Euros, which means that people are not exposed to currency fluctuations on their pension income. UK Pension legislation is a complex area, particularly when combined with the complexities of a foreign tax environment. You should seek advice, not only on your pensions, but on your general financial circumstances, to ensure you are fully aware of the legislation in the foreign country.
Transferring your pension funds abroad is a specialist area. Siddalls offer financial planning and taxation advice for people moving to France. In the case of those moving to France, Siddalls will analyse your UK arrangements and see if they can be better tailored to suit your future French residency.
For further information:
Siddalls