Many Britons choose to retire to France – it is one of the top overseas destinations for those who long for more relaxed days once they put their working lives behind them. There is a lot of planning to do on making the move and part of this should be to organise your finances to protect your wealth and you can truly get down to enjoying the French life, free from the worry of money problems.
There is so much to look forward to – attractive countryside, quaint villages and busy towns, French restaurants and cuisine, new hobbies and friends, a less hassled life-style. You don’t want to have to keep worrying about whether you should get your financial planning in order, or about whether or not your finances will be enough to cover the necessities – and luxuries – of retirement. You need to be confident that you can afford to fulfill your dream of retirement in France without having to tighten purse strings and fear running out of money when you get older.
For retirees, their main source of regular income is usually their pension. If your pension is not going to be enough to provide you with a comfortable living, you need to think about re-organising your savings into investment structures so that your pension can be better supplemented and your capital given the opportunity to provide income and/or grow, in the most effective and tax efficient manner for someone living in France.
Depending on the type of UK pension you have and whether you have started drawing income from it, there may be ways to improve your pension fund and earn more from it. The international pension scheme known as a QROPS (Qualifying Recognised Overseas Pensions Scheme) has many advantages if you move to France and you can even arrange or the fund and income to be in Euros.
Even if you don’t transfer you pension into a QROPS, for pension and other income you may need to convert Sterling to Euros, so think about using a currency broker. You can usually minimise bank charges and achieve a better exchange rate whether having regular payments or occasional lump sums moved from the UK to France.
In the 21st century you can expect to live between 20 and 30 years – or hopefully more! – in retirement. After working hard for your money all your life, now is the time to reap the rewards – but you will need a careful plan to ensure you don’t outlive your accumulated income. You really don’t want your money to expire before you do.
The key to long-term financial security is to ensure that your money will last you throughout your retirement years in France; keeping you at the standard of living you desire and with enough in the bank to cover unexpected expenses like medical bills, house repairs or a new car.
Generally, retirees can plan for the sum that they will need in retirement by basing it on around 80% of the amount they spent when they were employed. For example, they will no longer have travel costs to and from work and other incidental costs of their employment, such as lunches or clothes appropriate for their working environment.
In many ways life is cheaper in France, depending on what you like to do. It is quite possible that you will be socialising and eating out more at one of the attractive French cafes, bistros or restaurants. Or you may decide to take up new, exciting hobbies. You will want to make sure that you have the finance for all these activities.
Guard against inflation
Retirees often tell me that they do not want to take any risk with their money. They reject many investments outright because they feel they are risky and their capital won’t be protected. Yet I rarely hear anyone talk about the risks of inflation and this is one key risk retirees need to be aware of and plan to avoid. Even though inflation is low at the moment, many experts predict that it will return with a vengeance. In any case, even seemingly low inflation will reduce the value of savings over the long-term. Inflation should never be ignored.
When you leave your money in the bank (or a building society) it is vulnerable to being eroded by inflation. Each year your money will be worth less and less. The result is that you can buy less with it next year than this year, even less the year after, even less the year after that and so on. Looking ahead twenty to thirty years, you will have lost a substantial amount of spending power. In fact, it could be as much as 30-70%, depending on your personal rate of inflation over the years!
If you have a deposit account it will be earning interest – not much in the current economic climate and even less if most of it is wiped out by inflation (not to mention taxation) over the years. Frequent surveys often show that various individuals’ personal rate of inflation – i.e. the rise in the cost of the goods and services you spend your money on – is much higher than the official inflation statistics. Retirees often find their rate of inflation is two or three times higher than the average rate.
When you retire to France you want to feel comforted that you will have plenty of money to live on to enjoy your retirement days there. Your financial planning needs to be set up to aim to produce returns which keep pace with, or beat, inflation, to prevent you from running out of money in your later years and not being able to relax with pleasure in France.
Pay less tax
In order to protect your wealth it helps to pay as little tax as possible. In France you must declare and pay tax on your worldwide income and gains, but there are various ways you can structure your money to legitimately keep your tax liabilities to the lowest possible.
Also, tax rules and rates change quite often and you need to keep on top of these to achieve the best possible tax advantages when you live in France.
Protect your heirs
There is now no French succession tax on inheritances between spouses and PACS partners (although there is on gifts passed between them). Indeed, many of the allowances for relatives have substantially increased. But French succession tax is quite different to UK inheritance tax and you should take expert advice about succession tax planning. Depending on your circumstances and wishes, it may be possible to use appropriate vehicles to avoid or mitigate both French succession tax and UK inheritance tax.
What to do next?
Financial planning to protect your finances for a happy retirement in France is best done before you actually move so that no mistakes are made and you can take it easy, free from money worries – though if you are already in France, you should also review your financial planning, if necessary. It is worth discussing your options with a financial adviser based in France, or a UK firm with thorough, up-to-date knowledge on French regulations, who understand how pensions are taxed in both the UK and France, how to arrange your money in the most tax efficient way, and how to get the most out of your wealth throughout retirement.
•With thanks to Bill Blevins