One of the most striking differences between countries such as the UK and France is how people prepare for retirement.
In Britain, private pensions dominate long-term planning. Workplace schemes, personal pensions and SIPPs sit at the centre of retirement strategy.
In France, it is a different story. The French rely heavily on state and employee pension systems, but private personal pensions have never occupied the same space.
Instead, the assurance-vie, a tax-efficient investment wrapper and savings vehicle, plays a central role in long-term savings and wealth management.
When withdrawals are made, only the gain element is taxed, rather than the entire sum as is often the case with pension withdrawals.
For many French savers, this approach is also about control. State and employee pensions already provide structured and largely inflexible income. An assurance-vie offers capital that can be accessed and withdrawn on the saver’s own terms, with taxation influenced by timing rather than by obligation.
For foreigners living in France, the question naturally arises: should retirement planning rely on a pension pot alone, or should an assurance-vie form part of the strategy?
For more advice on managing your finances in France, visit Kentingtons.
Pension versus assurance-vie
UK pensions are generally recognised by the French tax authorities as legitimate retirement vehicles. Although they are technically held within trust structures under UK law, they are treated as pensions because they sit within a regulated UK framework.
Once resident in France, pension withdrawals are usually taxed as income. The issue is not that pensions are unacceptable, but that pension income can be rigid. Large withdrawals in a single year may push an individual into higher tax brackets, resulting in a larger tax bill than expected.
For many retirees, the challenge is accessing capital without losing control of taxable income.
An assurance-vie is not a pension. It is a tax wrapper that can hold investments and is generally accessible at any time.
Its main advantage lies in how withdrawals are taxed. When funds are withdrawn, only the gain element is taxable, not the original capital. After eight years, favourable tax treatment applies, including annual allowances on gains.
This makes an assurance-vie particularly useful for supplementing pension income. It allows retirees to top up their income without increasing taxable income to the same extent as a pension withdrawal.
France also offers its own private pension vehicle, the Plan d’épargne retraite (PER).
However, it is more restrictive in terms of access and has not displaced the assurance-vie as the preferred long-term savings tool for many residents.
In practice, pensions often provide the backbone of retirement income, while an assurance-vie provides flexibility.
For more advice about French estate planning, visit Kentingtons.
Cashing in a pension: proceed with care
Some individuals consider cashing in personal pensions to simplify their financial affairs.
While this can be possible, taking a large lump sum may generate substantial taxable income in a single year. In France, that can mean unexpectedly high tax rates.
Often, phased withdrawals over several years are more efficient than full encashment.
French tax law includes a specific provision, Article 163 bis, which may apply to certain foreign pension lump sums received by French residents.
Where the conditions are met, an individual can opt for a flat 7.5% income tax charge. This is applied after a 10% allowance, which is why the effective rate can fall below 7%.
That figure understandably attracts attention. However, it does not apply automatically. The type of pension, the structure of the withdrawal and the individual’s tax position are all critical.
For those considering cashing a personal pension, establishing whether Article 163 bis applies can dramatically alter the net amount received.
What about QROPS?
A QROPS (Qualifying Recognised Overseas Pension Scheme) is an overseas pension scheme that meets HMRC criteria to receive transfers from registered UK pension schemes.
They are frequently mentioned in expatriate discussions, but they should not be viewed as a default solution for French residents.
Moving a pension offshore can change how it is analysed under French rules and may introduce additional reporting and tax uncertainty. For individuals already resident in France, transferring a UK pension into a QROPS is rarely appropriate.
Those who established a QROPS long before moving to France should not assume there is automatically a problem. In many cases, the structure may already be settled and properly declared. As with most cross-border planning, timing and structure are key.
Seek professional advice
Pensions remain valuable but, in France, structure and timing matter as much as the size of the pot. Combining pension income with the flexibility of an assurance-vie can offer greater control.
Remember, cross-border retirement planning is complex, and significant decisions should be taken with appropriate professional advice.
Robert Kent is a financial adviser with Kentingtons.com
