UK pensions in France can be a cause of confusion and uncertainty for UK nationals retiring there. Ensuring your pensions and savings last the span of your retirement, and questions surrounding taxation, both in France and the UK, are some of the considerations that we will cover here.
Our pensions are often key for our long-term financial security, but unfortunately, they are complex. Deciding what to do with yours involves navigating various options, establishing how they suit your objectives, researching the tax implications, and weighing up the pros and cons.
UK pension and tax regulations change regularly, often impacting UK retirees in France, and French taxation is rarely straightforward. You need to keep up to date on reforms in both countries so you can review your retirement planning as necessary and make informed decisions.
You also need to look ahead to what threats may impact your pensions.
Lasting a lifetime – the longevity factor
How long will you live? And your spouse? Without a crystal ball, this is an unknown factor in financial planning, but an essential one nonetheless because you need your money to last as long as you do. The average life expectancy for a male aged 65 today is 85, with a 25% chance of living to 92. For a 65-year-old female, the average life expectancy is 87, with a one in four chance of reaching 94. Our hope is that we live longer than average and should therefore plan for living to a ripe old age.
When you consider that often it is necessary for the wealth of a deceased spouse to pass to their surviving partner for them to continue having sufficient money to live on, the need for a financial planning roadmap is very important.
Studies show that many people, including affluent households, often overestimate how long retirement savings will last. While you may always be able to afford basic living necessities, your later retirement lifestyle could fall well below your expectations. This could, for example, affect the level of care you can afford if needed in your later years, an important consideration if you live in France and your family is in the UK.
Much depends on the type of pension you have. A pension providing a secure income for life can provide peace of mind. Other options provide the opportunity for your funds to grow, but you need to carefully manage investment risk and the rate of withdrawal from the pension fund to meet your income needs.
The inflation, income, and investment factors
Recent inflation levels and rising prices have reminded us about how much inflation can impact our spending power. While we cannot predict inflation rates in our future years, even low levels reduce the value of savings and income over the long term. We need to plan ahead for it, both for our pensions and our investment capital.
The last year or so has not been kind to retirees with the rising cost of living and the possibility of investment portfolios being lower too. In this environment, people may be tempted to draw higher amounts from their pension fund.
When this is combined with longevity, the impact of spending too much in the short term (especially when portfolio returns are lower than average) can affect the long-term value of your funds and the ability to meet future income requirements. This in turn can cause a dilemma for retirees who need to meet today’s needs while protecting their future needs as well.
With a sensible portfolio and drawdown plan, this can be effectively managed. The key is to understand your financial needs (the amount required to cover basic living costs, for day-to-day costs such as meals out, holidays, and one-off expenses such as a new car), and then reviewing and adjusting your plan to cater for the year-to-year increases in the cost of living and portfolio performance over time.
The tax factor – France
When weighing up the options for drawing your UK pension in France, consider the French tax implications. Except for government service pensions, all other UK pension income is subject to French taxation. It is generally taxed at the scale rates of income tax up to 45% (after a 10% reduction), with non-S1 holders also paying 9.1% social charges. This includes lump sums.
When it comes to your non-pension capital, investment income is taxed at a flat 30%, including social charges. France also offers opportunities for tax-efficient investing. The popular savings arrangement, assurance-vie, for example, provides many tax and estate planning advantages.
If your personal situation allows you to take the risk of transferring all the capital from your pensions into a more tax-efficient investment vehicle, and you can take your entire pension as one lump sum, it may be eligible for a fixed 7.5% income tax rate instead of the full income tax rates (there are conditions, so establish if you qualify).
The tax factor – UK
Income from government service pensions remains liable to UK income tax. Non-residents currently continue to benefit from the £12,570 personal allowance (assuming they do not receive ‘disregarded income’ treatment).
On a positive note, the UK’s 2023 budget abolished the pensions lifetime allowance, resulting in 25%/55% tax charges, which was welcome news for those who’ve built up larger pension savings. This is not necessarily permanent though. A future government could reverse this move and the Labour Party quickly pledged to do so. There may therefore be a limited opportunity to transfer your pension out of the UK and avoid any future lifetime allowance charges.
Learn more about taxation in France by downloading our free guide.
The advice factor
Pensions are very personal, so establish a solution that works for your circumstances, needs and objectives.
Since they are so complex and making a wrong decision could impact your retirement security, you really do need to take professional, regulated advice. In any case, the UK rules require this for certain pension transfers.
The problem for UK nationals in France is that most UK advisers are not regulated to give advice to EU residents – they lost their ‘passporting’ rights with Brexit. Unless they have taken steps to be correctly regulated here, they should not be advising you.
Even without this issue, it’s important to get local advice in France. Most UK-based advisers do not have an in-depth understanding of French taxation, which can result in you paying much more tax than you need to.
Blevins Franks is regulated to provide advice on UK pensions in France and has the specialist cross-border advice you need – a thorough knowledge of UK pension regulations and of both UK and French taxation and the interaction between them.
Contact Blevins Franks today to arrange a personal consultation.
