Your pension choices could determine your long-term financial security, so take care to do what is right for you and your family. Colin Leigh-Higgott of Blevins Franks says that understanding the options and tax implications for different types of pensions is key.
‘Defined contribution’ pensions
From the age of 55, members of these schemes can usually:
Take the whole fund as cash – 25% will be tax-free in the UK.
Make cash withdrawals when you want – a quarter is usually tax-free each time.
Take regular income through ‘flexible drawdown’, leaving the remainder invested.
Take a regular income for life through an annuity.
Expatriates can also transfer UK funds to a Qualifying Recognised Overseas Pension Scheme (QROPS) to unlock tax-efficient benefits and currency flexibility. However, a 25% UK tax applies on transfers to QROPS outside the European Economic Area (EEA). Taking professional advice is important to establish if transferring is suitable for you and navigate the complex options.
‘Defined benefit’ or ‘final salary’ pensions
Here, your employer guarantees a proportion of your salary for the whole of retirement. While you cannot usually withdraw cash, you can transfer to a defined contribution scheme or QROPS.
Traditionally, this has been considered less attractive than drawing a pension for life, but today some providers are offering ‘transfer values’ of up to 40 times the annual benefits due at retirement. However, it is crucial to seek advice to fully understand the long-term implications before giving up guaranteed benefits.
While 25% of defined contribution funds can be taken tax-free in the UK, French residents will face French income taxes up to 45%. For lump sums, it is possible to limit tax to just 7.5% if you take the whole fund at once and have not already started taking benefits.
All pension income also attracts 9.1% social charges, unless you hold EU Form S1 or do not have access to the French healthcare system.
Making your money last
Having the freedom to access your pension does not mean that you should. If you do withdraw your benefits, make sure you have a personalised plan to fund your long-term future.
Beware of pension scams and also unregulated companies offering pension services, as they offer no compensation if things go wrong. Make sure your adviser is regulated through the UK Financial Conduct Authority and takes account of your needs, objectives, personal circumstances and risk appetite to find a tailor-made solution for you.
While you should take time to get it right, be mindful that some of today’s freedoms may not survive Brexit. Take steps now to establish your best approach for a prosperous retirement in France.
Up to date financial information can be found on the news page at www.blevinsfranks.com
You will find a comprehensive list of financial and legal experts throughout Gironde, Dordogne, Lot et Garonne, Lot, Gers, Tarn et Garonne and north Haute Garonne in our business directory pages under Financial and Legal.
Images: Blevins Franks
First published in the September/October 2018 issue of The Local Buzz