To move or not to move one’s pension pot? That is the question that many expat retirees find themselves asking.
As I try to answer it, the first thing I can tell you is that approximately half of our clients do, while the other half don’t.
Hence, we can safely conclude that, as so often in finance, it really does depend on your particular situation.
A pension might be your most valuable asset
We tend to rely on our pension pot in order to continue living life to the full. After all, living off just the UK full state pension of £179.60 per week would likely be challenging.
Of course, we should all have a plan for retirement, but that is a story for another day.
In this column we are solely looking into the question of what to do with a UK-based pension if you live in France.
Reasons to cash it in can be compelling
First, pension income for French residents is taxed for income tax on 90% of its value.
Secondly, subject to certain conditions, there is a very attractive tax rate in France for cashing in foreign pensions in full: the rate, after allowances, equates to 6.75%.
Consider too that, since Brexit, UK pension providers have lost automatic European passporting rights.
This means certain providers might no longer be allowed to offer advice to clients living outside the UK.
Finally, you may simply feel more comfortable with your pension funds denominated in euros, as this is the currency you spend in.
However, this is not a ‘one size fits all’ issue
For instance, in the case of a relatively modest pension from the UK, there might not be very much French income tax to pay and so you might decide just to leave the pension where it is, drawing down income according to your needs.
If, however, you are a 40% taxpayer and are doomed to pay this rate on income received, 6.75% seems attractive, saving over 33% in tax immediately and ensuring greater tax-efficiency on future returns.
There are, of course, other considerations and I thought it would be helpful to point out some that might influence your decision to cash in a UK pension, or not.
1. Are you already past state retirement age, or are you an early retiree? This will affect the way you are taxed in France.
2. Do you hold other assets, or is the majority of your accessible wealth held in your UK pension(s)? Under either scenario, how much, if anything, do you intend to draw down from pensions annually?
3. In point two, I write “pension(s)”. If you have multiple pensions, then it is perfectly possible, and at times may be very interesting, to cash in part of your holdings.
Take the example of somebody, or a couple, with three separate pensions. He/she/they might decide to cash in one pension, investing the funds in France, while leaving the other two pensions in the UK.
4. Do you anticipate eventually returning to the UK, or is the plan to see out your days in France?
5. Implications for inheritance will likely be another important factor.
6. If you do choose to cash in your pension (unless you are planning to stash it under the mattress or blow the lot!) you will need to consider what to do with the proceeds.
A UK pension is a UK tax-efficient long-term savings wrapper. Naturally, tax-efficient savings wrappers exist in France too. We will not go into any details on those today, except to say that interesting choices abound.
Careful assessment before decision
To conclude, consider if you went to an optician to see if you required glasses. Before coming to any conclusions, you would expect them to run a series of tests to evaluate your specific needs.
Similarly, for French residents, advice on whether to cash in a UK pension needs to be tailored to the individual.
With multiple criteria to consider, as I have outlined, any decision needs careful assessment of your family’s specific overall financial situation as French tax-residents.