Expatriates in France today can leave pensions in the UK, take a lump sum, transfer overseas and more, but Brexit may limit the options.
Expatriates in France can leave pensions in the UK, take a lump sum, transfer overseas and more, but today’s options and benefits may change after Brexit.
It makes sense for expatriates to adapt their financial planning for their life abroad. Taking advantage of opportunities available for French residents can potentially reduce taxation and provide more flexibility than UK-based alternatives.
Does the same apply to pensions: if you are permanently living in France, should you bring your UK pensions with you?
There is no right answer, as everyone will have their own set of requirements, plans and goals for their retirement. However, it is highly likely that pension opportunities for expatriates in the EU will change once the UK leaves the bloc. With Brexit only months away, there is an increasing urgency to review your options before they potentially disappear.
Leaving your pension in the UK
One option is to do nothing and access your UK pension from France.
If you have a defined contribution (‘money purchase’) pension, you can access funds in various ways. You could, for example, take cash in one lump sum or several withdrawals, receive a regular income until it runs out (drawdown) or purchase a lifetime income (annuity).
Defined benefit (‘final salary’) pensions, on the other hand, are company pensions that provide a regular income for the whole of retirement. While you cannot usually access benefits as cash, you can never run out of funds. On death, reduced lifetime payments are usually redirected to your spouse, if applicable.
If you have not started taking your defined benefit pension, you can transfer benefits to a defined contribution scheme for more flexible access. Take care, however, as transferring could be less advantageous than receiving a guaranteed income for life.
See more about transferring defined benefit pensions
There is concern that some UK pension payments will stop next March in the event of a ‘no-deal’ Brexit. Under current rules, many UK financial providers lose the right to operate within the EU, potentially making it illegal to pay benefits to Britons living in France.
However, this outcome can be avoided if new cross-border arrangements are established in time. Many British retirees in non-EU countries like Australia and Canada, for example, are able to legally receive their UK pension today without any problems.
New UK Brexit secretary, Dominic Raab, has insisted that the pension payments issue is one “that we ought to be able to resolve… even in the unlikely event of no deal.”
In any case, funds transferred to a QROPS will not be affected (more on this later).
Also note that UK pension payments are usually only paid in Sterling. If you live in France and your spending is in Euros, you could find that conversion fees and the variable exchange rate reduces the value of your pension income. As we have seen, the value of the British pound is highly vulnerable during Brexit uncertainty.
Transferring your pension abroad
Residents in France can move UK pensions to a Qualifying Recognised Overseas Pension Scheme (QROPS) tax-free.
Doing this can provide flexibility to take your pension in the currency you need and freedom to pass benefits to heirs other than your spouse. Funds would also be protected from future changes to UK pension rules that may adversely affect you – an increasing possibility after Brexit.
Beware, however, that the UK imposes tax penalties of 25% on transfers to a QROPS outside the EU/European Economic Area (EEA). With no approved QROPS in France, you need to select an eligible scheme in an EEA country like Malta to avoid losing a quarter of transferred funds to UK taxation. There are expectations that the UK could widen this taxation net to include EU-based QROPS post-Brexit.
The tax implications
If you are French resident, UK pensions (excluding UK government service pensions) are generally only taxable in France at the usual income tax scale rates up to 45%. The same tax treatment applies to QROPS withdrawals.
But if you have not yet accessed your UK pension and take everything out as one lump sum, you could pay just 7.5% (other conditions apply).
Social charges of 9.1% are also payable on pension withdrawals, but only if you have registered for French healthcare or you do not hold ‘Form S1’ (available at UK State Pension age).
Depending on your situation, it may be beneficial to reinvest UK pension funds into an alternative tax-efficient structure for France, such as an assurance-vie, so explore all your options.
Note that the benefits of an assurance-vie or QROPS can vary greatly between providers, so talk to a regulated adviser with cross-border expertise to avoid pension scams and establish the best approach for your circumstances and goals.
While there is no one-size-fits all answer for what to do with your pension, everyone can benefit from reviewing their arrangements now, before Brexit reshapes the landscape.
Contact us to arrange a pensions review
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; individuals should seek personalised advice.