Many of us dream of moving to another country. The thought of new challenges and adventure can be ‘just the tonic’ for those who feel that life is becoming just a bit too mundane in our home country. For those who have worked or lived in the UK, the attraction of greater exposure to sunshine, new food tastes, and interesting wines can be a tempting proposition. There is however always a desire not to be too far from our loved ones should we decide to move abroad.
France, it would seem, ticks all of the above boxes for those wishing to emigrate from the UK. Whether working abroad or seeking a suitable retirement destination, France appears to offer a lifestyle that can fulfil our everyday needs. Attractions include Paris, which is arguably one of the greatest cities on earth. For those seeking sun and sea, there is the French Riviera with its renowned cities of Nice, Cannes and Montpelier. Further north and westwards we have the beautiful coastal town of La Rochelle and the region of Brittany. And for skiers, we of course have the magnificent Alpine region. What more could anyone ask of a country?
Not so fast. Some caution is required.
Not everything is ‘smooth sailing’ as they say! It is necessary for those retiring to France to ensure that their finances are in order so that they can make the best of what’s on offer. No aspect of retiring abroad is more important than that of pension planning. This is particularly the case for UK retirees seeking to move their pensions overseas with the use of a Qualifying Recognised Overseas Pension Schemes otherwise known as QROPS. These vehicles are very useful platforms for the transfer of UK pensions. However, if not handled correctly such transfers can come back to haunt the individual. Here are 5 things that you need to be aware of before undertaking a QROPS transfer of your UK pension to France:
- Any pension which has previously been used to purchase an annuity cannot be transferred to a QROPS
- If you have already taken payment from a UK ‘final salary scheme’, you are not eligible for a QROPS transfer
- Benefits, including lump sum payments, from the transferred funds may not be distributed earlier than the normal retirement age of 55
- Any benefits paid before five complete tax years of non-UK residency and not in accordance with UK Pension rules will be deemed an unauthorised payment
- Should the value of the total UK pensions exceed the Lifetime Allowance limit of £1.25m, an individual would be subject to a tax charge of up to 55% on any benefit crystallization upon retirement or death
Another major factor for expatriates to consider when retiring to France is that their purchase of goods and services will be in the Euro currency. With many UK pension funds invested in Pounds Sterling, this can be an inconvenience and also expose individuals to foreign exchange risk on transactions. Expats who leave their pensions in the UK may have no choice but to convert their Sterling based pension income into Euros on a regular basis. Dependent on the exchange rate at the time, this may result in them ending up with less disposable cash than they had bargained for.
QROPS allow expats the flexibility of being able to draw income in Euros. Having the option of choosing the currency denomination of your pension scheme means that you can receive your retirement income in the same currency used to pay your expenses.
It is very important that people seek professional advice when opting for an overseas transfer of their UK pensions. There are disadvantages as well as advantages in transferring your pension to such a scheme. As such, it is necessary to examine the risks involved. Giving ‘best advice’ involves not just telling you about the benefits on offer, but also warning you of any potential pitfalls.
For further information on the use of QROPS and pension schemes when retiring to France, please contact AXIS Strategy Consultants.