Transferring your Pension Fund from the UK to France
France is the most common retirement destination for British Nationals. It’s only a 2-hour flight from the UK and combines excellent weather with beautiful landscapes. Whether you’re moving to rural Normandy, the popular Dordogne region or the French Riviera, France has a multitude of options.
Retiring somewhere, however, has other factors to consider. One of those being what to do with your UK pensions. Pensions are benefits built up from a lifetime of working, and ensuring they are compliant with the area you are moving too as well as accessible is important. There are two types of pension schemes: Defined Contribution (DC) and Defined Benefit (DB).
Defined Contribution (DC)
Defined contribution pensions are benefits built up directly from contributions, both employee and employer. The contributions are invested, whether that’s in equities, bonds or alternatives, with the intention to grow and compound over time.
The scheme value fluctuates depending on the value of the underlying assets. Due to flexi-access drawdown rules, you can access your scheme as and when you like from the age of 55.
Defined Benefit (DB)
Defined benefit pensions are not a built up pot – they are a guaranteed annual benefit paid until death. The pensions usually commence from age 65 and they are index linked meaning they rise in line with inflation.
For DB schemes with a transfer value (CETV) exceeding £30,000, UK regulated advice is required to transfer the scheme. This is because DB schemes benefits are valuable in that they are guaranteed income. As a result, the FCA ensures proper advice is received.
What are my options?
Transfer to an International SIPP
International SIPPs are UK pensions specifically designed for non-UK residents. They retain the stringent regulation of the FCA, but provide flexible access and the ability to draw down your pension in the currency of your choice.
They are a good option if you are not at or nearing the lifetime allowance and you may return to the UK in the future. In comparison to a QROPS, International SIPPS are generally 4-5 x less expensive.
Transfer to a QROPS
Qualifying Recognised Overseas Pension Scheme (QROPS) are foreign pension schemes that are recognised by HMRC and meet UK tax legislation requirements. QROPS are now typically based in Malta. Common retirement destinations such as France, Portugal and Spain do not offer a recognised pension scheme by HMRC. Therefore, to satisfy the rule of being in a recognised scheme that is also based in the European Economic Area (EEA), Malta has become the default option for a QROPS.
QROPS are most beneficial when your pension fund is approaching the lifetime allowance. The initial transfer is classified as a Benefit Crystallisation Event (BCE) therefore the value of the transfer is tested against the LTA. However, any subsequent growth is then outside the lifetime allowance charge.
Generally, QROPS are a more expensive alternative to a UK SIPP. For example, the cheapest available is STM. They do not charge an establishment fee and the annual fee is around £800. Compare this to the cheapest International SIPP available (Novia), where there is zero establishment fee and an annual fee of £216.
French tax on UK pensions
We have explored a blog on this topic previously. There are generally two options: Prelevement Forfaitaire or marginal rate.
If you take the pension as a lump sum, you can elect to be taxed under the Prelevement Forfaitaire rules. Under this election, a fixed rate of tax is applicable at 7.5% plus social charges at 9.1%. The downside is the money is disinvested and can no longer benefit from capital growth. However, the tax rate is very low so it is a case of weighing up the two options.
The other option is for the pension income taken to be taxed according to your marginal rate. The pension income is added to your other income for the relevant tax year and taxed depending on the rate it falls into. The rates are summarised below:
- Up to €10,225: 0%
- €10,225 – €26,070: 11%
- €26,070 – €74,545: 30%
- €74,545 – €160,336: 41%
- Above €160,336: 45%
If you have low income for the relevant tax year, it can make sense to have your income taxed this way.
Get in touch
If you have built up UK pensions and are wondering whether you may be better off transferring your scheme as a French resident, please get in touch.