Make the most of your UK pension

Until very recently, UK pensions have had to remain under UK rules, even if you retire to France (or anywhere else outside the UK). However, thanks to new legislation in the UK, it is now possible for British expatriates to export their pension fund out of the UK. This would mean that you would be able to avoid the various restrictions that the UK imposes on how you take your pension benefits.

There is also the possibility that you will pay less tax.

UK pension schemes can be very inflexible. There are restrictions on how and when you draw down your benefits and in most cases you are forced to buy an annuity at age 75. At that point you then cannot leave any balance of your pension fund to your heirs on death.

Overall, therefore, transferring your pension out of the UK and avoiding such restrictions could help you improve your retirement years in France. It could also mean that you leave your heirs a larger inheritance.

Overseas

The new legislation has created international pension products called QROPS – Qualifying Recognised Overseas Pensions Schemes. They are non-UK pensions which meet the rules of, and are authorised as pensions in, the jurisdiction where they are located.

HM Revenue & Customs (HMRC) now allows UK pension rights to be transferred out of the UK into a QROPS. In order to obtain QROPS status, the provider must meet a number of HMRC rules relating to how and when benefits can be taken. It must also comply with reporting requirements for five complete tax years after the fund holder has left the UK.

While some QROPS have rules whereby you must be resident in the country where the scheme is located, others do not. In this case you can choose a tax friendly jurisdiction that has more flexible rules on how the benefits can be taken.

Note that not all overseas pension schemes qualify as QROPS – so you need to ensure that you only transfer into an authorised scheme.

In order to transfer your pension out of the UK you must be have already left the UK for tax purposes (for eg, you would now be tax resident in France), or be intending to move out of the UK shortly. Once you are tax resident here in France, you can transfer your pension fund out of the UK into a QROPS in the same way that you would transfer between pension providers within the UK.

Which pensions can be transferred?

Many types of pension can be transferred, including personal and occupational pension schemes. Pensions that are in drawdown (even if currently in payment) and protected pension rights can also be transferred.

Unfortunately, it is not possible to transfer a basic state pension, or if you have already purchased an annuity. This also applies to most Final Salary Schemes if you have already begun taking benefits.

What are the benefits?

After you have been non-UK tax resident for five or more complete tax years, having transferred your pension into a QROPS, HMRC can no longer impose any requirements or restrictions on your pension fund. This is when the key benefits start:

· You will not have to purchase an annuity unless you want to.

· Your heirs will be able to inherit the balance of your pension fund when you pass away, something which is not possible under UK rules.

· Pension rights transferred into a QROPS are also now protected from UK inheritance tax, so your heirs can receive the fund without having to pay this tax on it.

· Pensions in a QROPS offer more flexibility on how and when you take your benefits than those controlled by HMRC.

· You can choose to receive your income in euros (or any other currency), and therefore will not be subject to the exchange rate risk when you receive your pension in France. You are therefore protected against future currency fluctuations.

· Last but not least, your fund will no longer fall under the UK tax net. The French tax on a properly constituted pension plan is highly beneficial. There is no tax to pay unless withdrawals are taken, and they can be structured so that minimal taxes are payable in France.

Regulation and advice

Transferring pensions into QROPS is a specialist issue and you should only seek advice from suitably qualified and regulated advisers.

Pension transfers are heavily regulated in the UK by the Financial Services Authority (FSA), an independent non-governmental body, given statutory powers that regulate all financial services.

If you are a French tax resident, careful consideration should be given to only taking pension transfer advice from advisers who are both regulated in the UK and in France, and specifically authorised to give advice on transferring UK pensions.

Financial advisory firms and their advisers can be regulated by the FSA in the UK as well as authorised to give advice in France through the EU Insurance Mediation Directive.

In the event that your adviser is not authorised on this basis, you cannot be sure about the competency of the advice given, which could be illegal and you may not be protected by Professional Indemnity Cover.

•With thanks to Jane Goodall