UK Pensions and Living in France
By Amanda Johnson
This article is published on: 30th May 2013
When I see the Charente melons being planted in the fields near my house, I realise that the winter has finally left us and another year has flown by. To many people who now live in France, each year that passes brings us one step closer to retirement and being able further enjoy our French adventure. Working and living in France brings different factors to bear than being in the UK and without careful consideration and planning these can result in your pension being lower than anticipated.
People often ask me: “How much will my UK pension likely be & how can I maximise my pension when I come to retire in France?”
Helping people understand what their pension position is and how they get best manage retirement plans in France is a key part of my role. Here are some of the areas we discuss:
- UK state pensions
- Work & other private pensions
- French retirement options (including returning to the UK)
- Inheritance
- Peoples increasing life expectancy
- Property and other assets as a pension pot
- Paying tax on your pensions (how & where)
Having left the UK, you may not have paid sufficient National Insurance (“NI”) contributions or if self-employed, paid a different NI class to qualify for a full state pension.
You may have pension pots from working at different companies and having moved to France want an opportunity to understand how these will mature and whether they can be better put to work for your retirement plans. Inheritance issues and any property you are thinking of using to supplement pension income is also worth noting.
Finally, how and where you pay tax on your pensions can be discussed to ensure that the tax you pay is as low as possible.
If you are living and working in France and have not considered your retirement plans, perhaps you would like me to visit you and have a free financial health check or simply email me with any questions and I would be happy to help.
Take control of your UK pension: QROPS
By Craig Welsh
This article is published on: 24th May 2013
Many expatriates remain unaware that British pensions can be transferred out of the UK. Should you be looking at QROPS to take control of your UK pension?
Since April 2006, individuals who have left the UK – and left behind private or company pension benefits – are entitled to a QROPS pension transfer. HMRC introduced the ‘Qualifying Recognised Overseas Pension Schemes’ (QROPS) to allow non-UK residents to transfer their frozen pensions outside of the UK.
This has led to many expats contacting their advisers for further information on how to improve their retirement options. And it’s not limited to the British; there are many foreign nationals who have built up a pension pot while working in the UK that can benefit from a QROPS pension transfer.
Pension transfers under QROPS are a tax efficient way for expats to greatly enhance their pension flexibility. Pensions in the UK are subject to very restrictive tax rules when it comes to succession planning and this can be much improved by moving the pension to another jurisdiction.
In some circumstances it may not be appropriate to transfer your pension, therefore, It is essential that a proper analysis is carried by a licensed and fully qualified adviser. This is a highly specialist type of financial planning and should not be entered into lightly. Should I consider using QROPS?
If you fit the profile below, then you should consider contacting us for a free analysis of your situation:
- You are no longer resident in the UK.
- You do not intend to return to the UK.
- You have a UK pension (or a number of pensions) with a total minimum value of GBP 50,000.
So what are the key benefits?
Succession Upon death most people would like to think that as much of their assets as possible would be passed onto their heirs. However, in the UK there can be a tax charge of 55 percent on your remaining pension if it is in drawdown and paid out as a death lump sum.
Furthermore, with many conventional final salary schemes, the widow’s/widower’s pension is only half the main pension, sometimes less if the spouse is quite a bit younger. A QROPS gives you the option to pass on the pension fund to your spouse, children and/or grandchildren as a pension or a lump sum, free of tax.
Investment choice By moving an arrangement out of the UK, there is a much wider choice of international investments available. Some existing pension schemes can be very restrictive in the choice of funds (UK only), or permitted investments. Most QROPS transfers can provide access to a wide range of sophisticated funds to suit your risk profile and lifestyle stage.
Currency Risk The underlying investments and income payments from a QROPS scheme can be denominated in a choice of currencies to reduce the risk of currency fluctuations. Many British retirees have suffered as the British pound depreciated in recent years against the currency zone they are living in. A QROPS can help you manage this risk.
Flexibility in retirement Your circumstances can change during your retirement years, for example, you may still do some work or you may move countries again. You will therefore need a number of options when it comes to taking your pension benefits.
In such situations, pensioners need to consider the PCLS (Pension Commencement Lump Sum – up to 30 percent with a QROPS scheme) and the level of regular income you need. A good solution under QROPS will allow you to vary your income in the future, rather than fixing it at one rate. Professional Advice Above all, getting professional advice is crucial, as well as choosing the right jurisdiction in which to transfer under the QROPS provisions. The pension should still be treated as a pension, i.e. it is not intended to be a way to ‘cash-out’ early. HMRC will come down hard on individuals, schemes and jurisdictions which abuse the rules.
A suitably approved scheme provider is also essential. At Spectrum we offer a free analysis of your pensions by our highly qualified advisory team, as well as our ongoing advice on portfolio management and the various retirement options.
‘Ask Amanda’ – The Deux Sevres Magazine & the Vendee edition
By Amanda Johnson
This article is published on: 15th May 2013
Welcome to “Ask Amanda”.
I have been writing regularly for the Deux Sevres Magazine and am delighted to be invited to now contribute to the Vendee edition. I want to start by introducing myself.
I am Amanda Johnson and have lived in the Loudun area, with my family, for the past 7 years. I am a Financial Planner working with the regulated Independent Finance company “The Spectrum IFA Group”. We specialise in helping expatriates understand the benefits and obligations of living in the French system. Bilingual, with 20 years of financial experience in the UK, I am authorised through Orias in France and The Spectrum Group is also registered with the AMF.
Living in France is very rewarding but many of the rules and regulations, especially when it comes to taxation, inheritance, retirement planning, buying and renovating your home, differ from the UK. Working closely with colleagues throughout France ensures I can share experiences, best practices and keep you abreast of changes in French financial law. This is why I consider it important to have a servicing strategy of regular face to face meetings with my clients.
I am frequently asked about Inheritance tax planning and can usually make recommendations that ensure when you have lost a loved one any financial loss is kept to a minimum? I can help you optimise your savings by offering a range of investments in major currencies, protecting you from exchange fluctuations and from inheritance tax should the worst happen. I can also review existing pension arrangements giving advice on your future retirement plans.
Over the coming months I will be detailing questions I am asked and providing answers which have helped my customers & I hope will assist you. For a Free Consultation, on Inheritance tax, investments, retirement planning and tax efficient buying or renovating your home, or to review your current circumstances, please contact me.
How to plan your retirement
By Craig Welsh
This article is published on: 28th March 2012
Most expats today know they can’t rely on the state or even their company pension schemes to keep them in a comfortable retirement. Here we look at an international savings plan, designed for expats who are often on the move.
We all work hard and when the time comes to enjoy retirement, we’d like to be financially comfortable enough to enjoy it!
David moved to the Netherlands from England one year ago. The 30-year-old works in IT and earns approximately EUR 4000 per month. He is planning to work in the Netherlands for another five or six years and then he thinks he may move on to another country before probably ending up back in the UK.
He feels that he would like to have the option to retire before the company pension age of 65. He has built up some cash savings as his “emergency fund”, and this can be used in the event that he loses his job or something else unforeseen happens. He thinks it is sensible to set aside an extra EUR 500 per month for the longer-term, but wants to know how he can do this best.
Retirement planning for internationals
It is becoming abundantly clear that, as individuals, we have to take more responsibility for our own retirement planning. It will not be enough to rely on employer pension schemes (where many people are only making minimum contributions and most final salary schemes are closed to new entrants) or, indeed, government support.
As we have seen, most Western nations are now running huge deficits and are considering raising state pension ages. Furthermore, most developed countries have an ageing population, meaning that fewer people will be working to fund those who are retired.
Of course, if you are a contractor or self-employed, you will not be accruing any company pension benefits at all. Taking responsibility for your own finances is therefore even more crucial!
Often, expats are in good jobs and like to think that they will have options in later life in terms of retiring early or pursuing other projects. They can also be in a position to set some of their income aside for the longer-term, but where best to put it? When you are living and working abroad, it is often difficult to know how to use your money sensibly.
You should, of course, look into which tax-efficient savings schemes are available in your country of residence. While these differ from country to country, there are usually limits on how much you can contribute to these schemes and sometimes there are restrictions on when you can access the money.
Solution for David: International Savings Plan
David should consider an International Savings arrangement. By putting his EUR 500 per month into an International Savings Plan, David can continue paying into it even if he moves to another country. He is also not tied to a particular retirement age. Moreover, he retains control of the money at the end, as he is not required to give up the capital for an annuity (i.e. give up most of the money in the pension for an income).
Key features of an International Savings Plan:
Portability
If you move back home, or work in a different country, you can take the plan with you and you can continue to contribute to it. This is a major advantage of using an International Savings Plan, as you cannot do this with most other pension schemes. Instead, expats are often left with a number of small pension schemes scattered across different countries.
Flexibility
Most International Savings Plans will take into account the uncertainties of working internationally and allow you to control how and when you make contributions, as well as how much you contribute and in what currency. Plans can be started from around EUR 150 per month.
Control
It is a private plan, which you can control. For example it doesn’t need to tie you to a specific retirement age and doesn’t require you to take an annuity (exchanging capital for a lifetime income). You can choose when and how you use the money you have saved, and retain control of the capital.
Investment choice
Most International Savings Plans give you cost-efficient access to an excellent range of funds, to suit most risk profiles. You can switch these funds at any time. This is important, of course, as you get closer to the point when you actually need to use the money; for example, it is not advisable to be fully invested in shares with only a year or two left until you take the money. Regular reviews are important!
Tax-efficiency
Savings are usually based in a tax-efficient environment, where they can grow tax-free. Contributions are generally not tax-deductable.
Other points to note
Financial strength and regulation are important factors and each individual will have different requirements. This can depend on your current country of residence and your expected destination (i.e. where are you most likely to be in retirement?). These factors should all be taken into account as this can impact which type of savings arrangement will suit you best.
For example if you intend to retire in France, you should be aware that some plan structures (with assurance vie status) are particularly tax-efficient in France, while others won’t be.
Retirement plans should be regularly reviewed, as part of your overall financial planning. One of the reasons why people do not get the most from their finances is the lack of regular attention paid to their arrangements. Consider using a regulated and qualified independent adviser who should offer regular reviews as part of their ongoing service.
The sooner the better!
The sooner you start to set aside something for the long-term, the better! Your money then has more time to grow and allow you to build a comfortable retirement pot. Consider the “Cost of Delay”; the lost contributions and compounded interest that would have been earned. “Putting it off for now” can cost you a considerable amount and only means you have to save more in later years.
The advice is therefore to set aside whatever you can from your monthly income and start planning today.
How changes to UK pension law can benefit expats
By Craig Welsh
This article is published on: 17th February 2009
Recent changes to UK pension legislation means that many expats can benefit from much greater flexibility at retirement using Qualifying Recognised Overseas Pension Schemes or QROPS.
Many UK Expatriates are unaware that changes to pension rules were brought in by the British Government to allow greater flexibility in transferring pensions and to remove some restrictions and regulations. A particular advantage to such a pension transfer to an overseas pension scheme can remove the requirement to purchase an Annuity and may have further tax advantages.
Introducing Qualifying Recognised Overseas Pension Schemes or ‘QROPS’
Since April 2006, individuals intending to leave or those who have already left the UK, and who have left behind private or work pension benefits can benefit from a QROPS Transfer. HM Revenue & Customs introduced QROPS “Qualifying Recognised Overseas Pension Schemes” which allows a non-UK resident to transfer their frozen pension outside of the UK and the restrictive pension rules.
This has led to many UK Expats contacting their advisers for further information on how to improve their retirement options. Pension transfers under QROPS are a tax-efficient way to greatly enhance pension opportunities. Leaving frozen pension in the UK has very restrictive tax rules for UK expats to consider, and we at Spectrum IFA have been advising expats across Europe on QROPS solutions that fit their individual requirements. In some circumstances however it may not be appropriate to transfer your pension, each case is treated on its merits and a full review is undertaken.
Does QROPS apply to me?
- If you answer yes to the following questions then it is worthwhile seeking a full expert appraisal of your pension benefits:
- Do you intend leaving the UK?
- Have you left the UK and are working overseas?
- Are you now living overseas and have pensions still in the UK?
- Would you like to understand more about QROPS?
What are the key benefits?
Annuities
Annuities are generally unpopular because it means that you give up your capital, the amount that you have built up in your pension, less any tax-free cash you are allowed, to an annuity provider who will guarantee you a lifetime income. The annuity rate however reflects interest rates. Current rates are extremely low and have meant that many people have received much smaller pensions than they might have hoped for. If you were being forced to buy an annuity in the current climate you would definitely see why they are unpopular!
By transferring to a QROPS, there is no requirement to purchase an annuity and income can be ‘drawn-down’ from the fund. The following example illustrates the point simply;
| UK pension |
Post QROPS | |
| Value Value of pension fund at retirement | 250,000€ | 250,000€ |
| Cost of annuity purchase | 250,000€ | Nil |
| Capital remaining on death | Nil | 250,000€ |
Tax-free cash
With a QROPS approved scheme, the amount of tax-free cash available at retirement can be greater than the 25 percent allowed with a UK pension. This depends however on the jurisdiction used.
Inheritance tax planning
Most people would like to think that, upon their death, as much of their assets as possible would be passed on to their heirs. It is a complex issue, however, by transferring to a QROPS the taxation of pension benefits on death can be much less punitive. With a UK pension scheme for example, there could be a tax liability of up to 55 percent of the fund value before being passed on. By bringing the pension out of the UK and using a QROPS approved scheme, this tax liability can be greatly reduced, or even wiped out completely.
Investment choice
By moving an arrangement out of the UK, there can be a much wider choice of investments available to the pension fund, with a more global focus. Some existing pension schemes can be very restrictive in the choice of funds (UK only), or permitted investments.
Currency risk
This should be considered for expats who do not intend to go back to the UK, but with pension assets in Sterling. By transferring to a QROPS, the underlying investments and income payments can be denominated in a choice of currencies to reduce the risk of currency fluctuations.
Can any pensions be transferred into a QROPS?
Not all pensions can be transferred into a QROPS – a pension arrangement from which you are already taking benefits cannot be transferred. State pensions are also non-transferable into a QROPS. For all other schemes, a full and comprehensive analysis should be undertaken before deciding on suitability.
Above all, getting professional advice is crucial, as well as choosing the right jurisdiction in which to hold the QROPS and a suitably approved scheme provider.