There have been several significant QROPS developments in France over the last year. France remains one of the most popular destinations for British expats to retire abroad. It is estimated that 300,000 currently reside there. Changes in pension legislation have a direct impact on the livelihood of retirees.
Removal of French PERPS as recognised QROPS
One of the most important QROPS developments in France was the removal by the UK government of all French PERPS (Plan d’Epargne Retraite Populair), from the public list of approved Recognised Overseas Pension Schemes (ROPS).
It was deemed that PERPS did not satisfy the requirements outlined by HMRC. Current UK legislation allows scheme members to have access to their pension fund after the age of 55. In France, the statutory retirement age is set at 62 years. However, early withdrawals from pensions before the retirement age are authorised in some exceptional circumstances:
- Death of the spouse
- The end of unemployment benefits
This anomaly highlighted the inconsistencies in the pension laws of both countries and was essentially the trigger for the delisting of French schemes.
UK Pension transfers to Malta
As a result of the above changes, expatriates in France wishing to transfer their UK pensions to a QROPS must select an eligible scheme in a third country. Malta-based ROPS offer the same unrestricted access to pensions that exist in the UK. They are therefore a good substitute for those who considered a French PERP in the past.
QROPS developments in France and the treatment of the Pension Commencement Lump Sum (PCLS)
Lump sums taken from UK pensions are taxed in France at a rate of 7.5% income tax. One way to avoid this issue, for those retiring to France, is to take your PCLS in the UK before you leave. In so doing, you will be eligible to receive a 25% tax-free lump sum.
The Overseas Transfer Charge
The Finance Bill 2017 legislated that transfers to QROPS requested on or after 9 March 2017 will be taxed at a rate of 25% unless at least one of the following applies:
- Both the individual and the QROPS are in the same country after the transfer
- The QROPS is in one country in the EEA (an EU Member State, Norway, Iceland or Liechtenstein) and the individual is resident in another EEA country after the transfer
- The QROPS is an occupational pension scheme sponsored by the individual’s employer
Beware of the five-year liability clause
Transferred UK pension funds remain taxable by HMRC for five full tax years. QROPS providers will be required by HMRC to report income payments to anyone who originally qualified for an exemption and after that moves to a country outside the EEA. In such a scenario, individuals would face a 25% tax bill on the initial transferred value.
If you decide to retire to France or elsewhere abroad, it is necessary to explore all avenues to minimise tax liabilities. For those unsure of their future movements, it may be best to consider the transfer of your pension to an International SIPP.
International SIPP vs QROPS
Both International SIPPs and QROPS have similar characteristics allowing the individual a more flexible approach to the management of their existing UK pensions. In terms of suitability, a QROPS is generally more appropriate for those with larger pension pots. A QROPS can help protect against future tax liabilities for those nearing the UK Lifetime Allowance (currently £1 million).
In contrast, an International SIPP is the preferred option for those with smaller pension pots, or anyone resident outside of the EEA who wishes to transfer their UK pension overseas and avoid the overseas transfer tax highlighted above.
With all of the uncertainty surrounding Brexit, it is important to take professional advice and consider all options when considering the transfer of your UK pension. Given the pace of QROPS developments in France in terms of pension legislation, it may be in your interest to act sooner rather than later.