A question for UK citizens and anyone who has worked in the UK and contributed to a personal/company pension. For example, Laurence our French editor has worked in the UK and is now exploring her transfer options.
The answer is fairly simple; depending on your needs and objectives.
Since 2006, it has been possible to transfer your pension from the UK into an HMRC recognised scheme, which meets certain conditions and standards equivalent to that of a UK pension, known as QROPS (Qualifying Recognised Overseas Pension Schemes). They have become hugely popular with international individuals who understand the benefits of transferring their UK pension overseas.
As a French resident, you are eligible to transfer your UK defined benefit (DB) or defined contribution scheme into a QROPS. As long as you remain in the EEA for at least 5 years, there should be no adverse tax consequences. So, a QROPS could be one of the most favourable pension schemes available to you offering many advantages.
With UK pensions over £1 million, Lifetime Allowance Tax in the UK will apply. Any excess of this, if taken as a lump sum, will be taxed at 55% even if a French resident. This can be mitigated by transferring to a QROPS before the value reaches a million. If the value is higher, 25% tax can be paid on the excess and allow the fund to grow freely from this point.
Since George Osborne’s 2015 legislation changes allowing pension freedoms, defined contribution scheme members can access their pensions in full. This has coincided with rising pension value transfers due to low interest rates and low gilt yields. Transfer values have hit record highs but this is not expected to last as interest rates are predicted to increase and therefore transfer values will reduce.
Passing assets to loved ones or beneficiaries tax efficiently: On death in a DB, members with no spouse or with children over the age of 23 lose the pension. Conversely, if they have a spouse, just 50% of the pension benefits will be paid. For a DC scheme, on death after age 75, benefits taken by the beneficiaries are subject to UK income tax. A QROPS transfer can mitigate these taxes and leave the fund free of any UK tax.
A key retirement planning objective is deciding what you actually need from your pension fund. Most expatriates require different levels of income each year to meet their lifestyle needs. Clients may also want ad hoc lump sums and if you have an existing UK DB scheme this will not meet your needs and a QROPS should be considered.
With fears over exchange rate risks and UK pensions typically paying in sterling, a QROPS advantage is that it can pay in euros.
Please note the above is for information only. No liability can be accepted for any actions taken or refrained from being taken as a result.