If you’re living in France or plan to retire there, how can you ensure your pensions, savings and investments last your lifetime?
If you have retired in France, or planning to, how can you ensure your pensions, savings and investments last your lifetime and provide for your chosen heirs?
Life expectancy has increased over recent decades in developed countries. Assuming we are healthy and of sound mind, living to a ripe old age does have appeal – more time to enjoy your retirement years in France! There are, however, implications at both personal and government levels, with the key issue being: will we be able to afford it?
Official French statistics show that average life expectancy at 60 years is 23.2 for men and 27.6 for women, so living to 83 and 87 respectively – three years longer than for 60-year olds in 1999. UK government statistics put the average life expectancy of men aged 65 in 2017 at 83 and women at 86, while Britons aged 90 could expect to live another four years. And of course, these are just averages; half of us will live still longer.
This is all very well and good, but it means we need our savings to last us longer than we may have expected years ago. Assessing whether your resources are on track to last your lifetime will give you peace of mind.
Income and inflation
Do you want just enough each month to live comfortably in retirement, or perhaps a bit extra to afford some luxuries? Would a modest income suffice provided you have access to ‘rainy day’ or contingency funds? Bear in mind that as we age, we are more likely to have healthcare costs.
It is important to factor in inflation. As the cost of living rises year after year, the value of your savings and income could significantly reduce. Say, for example, you spend €5,000 a month. Assuming an inflation rate of 3% a year, in 10 years’ time you could need €6,720 a month to maintain the same spending, and €9,030 in 20 years.
Inflation does tend to be lower in France; the Consumer Price Index was 1.1% in July. But your personal inflation rate can be very different from official statistics, depending on what you spend your money on. Inflation for fresh foods, for example, was 6.7% in July.
If you live in France throughout retirement and convert a fixed sterling income to euros, exchange rates could also affect your spending power.
Data released by Equiniti in May, a company that manages the payments of 60,000 UK retired expatriates, showed that the cost of living for UK retirees in the Eurozone had increased by 14% since May 2015 – twice the 7% inflation in the UK. Currency shifts, much caused by Brexit uncertainty, means British retirees in the EU have lost out more than those in the UK.
As we all live longer, governments are faced with higher pension and health care costs (and less tax revenue from employment). They will need to find ways to fund these escalating expenses and taxation is likely to be one of them, so the future does not look encouraging for taxation.
Higher taxes can be a considerable threat to your financial security in retirement. Just like inflation, it erodes your income – and in France we have social charges on top of income tax, giving us quite a high tax burden.
Making your savings and investments last
Review whether your savings, investments and assets are working hard for you and are protected from unnecessary taxation. Are you making the most of the tax-efficient opportunities available in France? Or are you holding onto the previous arrangements from the UK that attract higher taxation and maybe provide less growth? If you are a business owner, have you started planning a tax-efficient exit strategy to get the best out of your years of hard work?
As you get older, you may prefer to take less investment risk. That is understandable, but your capital needs to keep pace with inflation and cash in the bank is unlikely to do this. It is a good idea to obtain an objective analysis of your risk tolerance. Armed with this information you can adjust your portfolio so it is suitable for your situation today and future goals. A well-diversified, carefully structured portfolio can significantly help reduce risk.
Explore arrangements that offer the flexibility to hold investments in more than one currency. This provides currency diversification and allows you to convert when it suits you.
You could get currency flexibility through an ‘assurance-vie’, a specialised form of life assurance that allows French residents to hold a range of investments in a highly tax-efficient package. There are many different assurance-vie options based in various jurisdictions, not just France, and not all offer currency flexibility, so choose carefully.
Getting the most from your pensions
Pensions are often the key to financial security in retirement, so take care to do what is right for you. While you should review all your options, your best approach could be taking no action at all, especially if you have a ‘final salary’ pension that guarantees an income for life. Always be careful to avoid pension scams as these are much more common (and sophisticated) than you may expect.
Expatriates can currently benefit from transferring UK pensions to an EU/EEA-based Qualifying Recognised Overseas Pension Scheme (QROPS) – although the UK’s ‘overseas transfer charge’ could be extended at some point post-Brexit so it may be worth looking into this now – or reinvesting a lump sum into French-compliant arrangements like an assurance-vie. As well as tax efficiency, this can provide estate planning advantages and flexibility to take income in sterling or euros, but always take personalised advice to establish the most suitable approach for you.
Leaving wealth behind
If you want to leave a lasting legacy for your family, you have to make sure you do not spend it all in your own lifetime – without compromising your quality of life today. A strategic financial planning approach – that considers estate planning alongside investing and tax planning – can prove invaluable here.
Estate planning in France is complex, with succession tax based on the beneficiary and succession law imposing forced heirship. If your family includes children from previous marriages, be particularly careful to ensure everyone benefits as you wish them to.
Whatever your stage of life, good financial planning can help you afford the lifestyle you want, for as long as you need, so you can focus on enjoying your time in France.
Contact your local adviser for a review
This article should not be construed as providing any personalised investment or taxation advice. You should take advice for your circumstances.