Withdrawing UK pension in France
Are you a French resident withdrawing a UK pension in France? Is this the first time you will be drawing on your personal pension since moving to France? Do you have more than one pension you wish to drawdown from? Within this article, we will discuss the process involved and key areas to watch out for. We will also address options for the future and the tax implications upon withdrawal, for those living in France with UK pensions.
UK Pension withdrawal
Under the Pension Freedoms act 2015 anyone age 55 and over can access their pension. This consists of a 25% tax-free lump sum also known as PCLS Pension Commencement Lump Sum. The rest of your pension can be encashed on an ad-hoc basis but is liable for income tax. For older pension schemes that may not allow flexible access, you can usually transfer internally with your pension provider (at no cost) to a pension scheme that does allow access. In the small number of schemes you cannot, you will be required to transfer to new scheme, such as a SIPP.
UK Pension withdrawal as a French resident
In rare cases, you are able to withdraw pension monies from your UK pension scheme as per the above. Usually, however, UK pension providers will not pay out pension benefits if the member is a non-UK resident. Alternatively, they will not allow an internal transfer to a flexible access account for non-residents. As such this leaves French residents requiring a pension transfer in order to receive pension payments.
Transferring a UK Pension for flexible access
If you do need to transfer your pension holdings for flexible access there are 2 options.
- QROPS (Qualifying Recognised Overseas Pension Scheme) – By utilising a Maltese based scheme you gain flexible access, ability to withdraw up to 30% tax-free lump sum (tax-free in UK) and due to double tax treaty between Malta and France can drawdown your pension gross and declare the monies as income in France for the applicable tax. Importantly there is no LTA – Life time Allowance currently £1.055m. QROPS are expensive however and unless you are nearing your LTA offer no significant advantage over a SIPP or International SIPP. You can find a comparison of the existing QROPS market here.
- International SIPP (Self Invested Personal Pension) – Called International but still held in the UK thus offering the full protection of UK pension legislation and the FCA Financial Conduct Authority. The SIPP allows flexible drawdown from age 55, PCLS 25%, ability to hold multi-currency investments, and, by obtaining an NT code you can still drawdown your monies gross whilst costing a fifth of a QROPS. In short, the product works exactly the same as a normal UK SIPP. i.e it’s housed in the UK, regulated by the FCA (Financial Conduct Authority) and holds only UK standard assets (funds) all, in turn, FCA regulated. However, it has been specifically designed for expatriates such as yourself. You can find a comparison of the current International SIPP’s available here.
French Tax implications
Due to the double tax treaty between the UK and France by applying for an NT code you are able to receive your pension income gross in the UK and pay the associated taxes here in France. Although the 25% tax-free lump sum is tax-free in the UK, tax is applicable here in France. Usually circa 15% from social charges and income tax. For information on how to apply for your NT code please find an article I have written here
Key considerations when withdrawing my pension
With the unprecedented level of volatility currently being experienced throughout global markets and the impending recession, some key areas should be addressed when withdrawing from your pension.
- Portfolio management – when all markets are going down, even those considered low risk such as fixed income / bonds, portfolio management is more important than ever. Investing in the right areas, aligned with your requirements, is paramount to your pension providing for you. Whether this is capital protection, income generation, a mixture of both or long term growth. If your pension is not diversified enough in the right areas you risk running out of money.
- Currency – with huge swings in the currency markets, (Sterling has lost 20% to the Euro in the last month) being invested in GBP and living / spending in euros provides significant risk to your pension income. By investing in the currency you live in (euro) this risk can be negated.
- The efficiency of structure – many of the old pensions which use bonds or like OMW are structurally setup as bonds are hugely inefficient. To disinvest involves signing of documentation, scanning, emailing, 5 day processing times and 5 day disinvestment times. As such it is very much a lottery as to the when and what value you disinvested from your investments. In this current climate with such volatility, it can result in large losses. By utlising an efficient, functional platform, these risks can again be negated.
FAQ’S – Withdrawing UK Pension in France
Can I withdraw the whole amount?
Yes, you can, however, this will create a large tax liability. The 25% is tax-free in the UK with the applicable taxes to pay in France (7.4% income and 7.5% social). The remaining monies will be taxed as income so depending on the value of the pension this is likely to be a sizeable amount. It would make more sense to withdraw the monies over a number of years to negate the tax liability of large withdrawals.
Can I take my pension as income?
Yes, you can. Via flexible access drawdown, you can take pension payments as you wish whether regular monthly payments, quarterly or bi-annually.
What happens if I don’t have a UK NT code?
Without an NT code you will be taxed at source in the UK when making a taxable withdrawal (over £12,500) and taxed in France. You will then need to claim your tax back via HMRC.
How long does the process take?
For a straight forward withdrawal 2 – 3 weeks from starting the process to receiving your pension payment. If you do not have access via your existing pension and need to transfer to another scheme then 4 – 6 weeks is standard.
Will they pay to a French bank account?
Usually, UK providers will not pay into a French bank account however via an International SIPP you can. Importantly however you do not want to transfer GBP to a EUR account as you will typically be charged up 4% for converting the currency via your bank. Either open up a free foreign exchange account or within an International SIPP this can be done internally.
Do I have to take the whole 25% in one go?
No, you can take 10% to begin with and more later on. The 25% is calculated at the time of requesting to withdraw monies. As such, it often pays off to invest your pension pot and let it grow. For example.£100,000 pension pot = £25,000 tax free. 5 years later, £150,000 pension pot = £37,500.
Is the 25% tax-free lump sum (PCLS), tax-free in France?
No. The monies will incur an approximate social charge of 7.4% and an income tax of 7.5%.