When moving to a foreign country, one of the things one must consider is “pension planning”.
In France, for years retirees relied solely on the state pension system called “systéme de retraite par reversion”, a reversionary pension system.
It is only in the past 20 years, due to excess in the number of retirees with the baby boomers reaching pension age, that personal pension schemes, such as the Plan d’Epargne Retraite Populaire (PERP) which is similar to a UK Personal Pension Plan, or the “Loi Madelin Plan Retraite” for self-employed, and the “Article 83” occupational plans have slowly developed. These policies may not be of interest to all expatriates. But for those that live and work in France as self-employed with Auto Entrepreneurs, Enterprise individuelle statuses or who own Limited companies (SARL, SAS..) we strongly advise them to read our “Loi Madelin” policy section, as these policies not only may be an exciting pension planning vehicle, but also help individuals or companies reduce their tax expenses.
As far as overseas pension planning is concerned HMRC’s 5th of April 2006 pension reform act has been a turning point, enabling British expatriates as well as foreign nationals having worked in Britain for a period, to transfer their personal and private UK pensions overseas free of tax, by using the Qualifying Recognised Overseas Pension Schemes (QROPS).
These overseas schemes have many advantages such as flexibility, accessibility and are multi-currency.
For the French Tax resident, transferring a pension to a QROPS can become doubly beneficial.
For instance, since April 2015’s « Freedom and choice in pensions” act, individuals can « Flexi access» 100% of their UK pension fund after the age of 55, enabling them to withdraw their entire pension pot at once.
For French tax residents, in particular, this set up is an opportunity to upgrade their pension planning to a more advantageous solution, offering tax advantages on withdrawals, overriding France’s succession law’s and providing additional inheritance tax allowances to their heirs, and more.
As an example:
If one has moved to France after the age of 55 and planned to withdraw a lump sum from their UK Personal Pension Scheme regularly. They would be entitled to paying up to 45% French income tax as well as social tax (unless they are still paying into their UK social contributions, in which case they are exempt of such charges in France) , on that entire amount. Please note that the new “prélèvement à la source” PAS system which took place on 1st of January 2019 in France, has no incidence on the existing “marginal tax scales” TMI. On top of this, Social Tax is also due, as well as facing unpredictable currency changes (and that is without considering Brexit influence).
If on the other hand, once moves their pension Scheme to a regulated QROPS, thus avoiding a 55% tax penalty which one would face, if their pension was transferred to anything but a QROPS, and then as from the age of 55 onwards they chose to “Flexi access” their entire QROPS pension pot. In return of a small 7,5% tax (article 163 bis, II du CGI), and (if one has stopped paying social charges in the UK), an additional 9,1% social tax charge, one could reinvest their entire pot into an extremely flexible investment wrapper. Offering as many options as tax benefits and enabling them to reduce their tax bill on the same complementary pension income as before, up to 60%, and consequently save themselves and their heirs a considerable amount of money.
If this is set up and orchestrated by proper wealth management engineers, in respect of EEA regulations, and if all the necessary ingredients are in the equation, this strategy is a powerful expat estate planning tool.
DTB Wealth Management’s experts are regulated and have the know how to help set this up and help meet one’s objectives. Learn more about how DTB Wealth Management can help you by clicking here.