Pension Options When Retiring to France: Planning for Your Future

Whether you have a state pension, workplace pension, or private pension scheme, you generally have three options available to you when you retire to France:

• You can keep your pension fund in your home country (i.e. in the UK for a British expat or the United States for an American expat) and receive your payments either into your home country account (i.e. your UK or US account) or directly into your French account if your pension fund allows.
• You may be able to transfer your pension fund to a France/EU based pension scheme (such as a QROPS for British pensions).
• You may be able to take your pension (or part of your pension) as a lump-sum payment.

Which option you choose will first depend upon the options supported by your pension scheme and secondly by the financial and tax liabilities associated with each option. Here are a few of the most important considerations when receiving your pension in France.

Currency Exchange Rates on Sterling and Dollar Pensions

If you retire to France and receive payments from a state or private pension, it may be possible to have them paid directly into your French account. Alternatively, you may decide the best option is to receive your pension payments into your foreign account (i.e. into your bank account in the UK, US, or other country). Either way, unless you have a Euro pension, your monthly pension payments will be subject to variable currency exchange rates and conversion fees. So, which is the best option?

Receiving your pension in your French account

Payments made directly to your French account from your pension provider may seem like the easiest and most convenient option. You will receive your pension payments each month in Euros, you won’t have the hassle of making international money transfers, and you won’t need to worry about calculating exchange rates when filling in your annual French tax return.

However, it’s essential to find out how your pension provider will calculate the exchange rates and whether additional transfer fees will be charged. It’s also important to understand that the amount you will receive every month will vary depending upon the currency exchange rate. This means you won’t be able to protect yourself in the event of a drastic drop in value of your home currency, or benefit from a strengthening of your home currency either.

Receiving your pension in your UK/US/foreign account

The alternative is to receive your pension in your overseas account and then transfer it yourself to your French account (note that this may be the only option available for some pension schemes or state pensions). Although you will also need to take into account currency exchange rates, you now have the flexibility to decide when and how you make the transfer.

In this case, it’s highly recommended to open an account with a currency exchange specialist to ensure the best possible exchange rates, and minimal or zero transfer fees. Depending on your personal situation, you might set up a regular payment plan that fixes the exchange rate to ensure you know exactly how much you will receive each month and protect you against currency fluctuations.

If you don’t need your monthly payments to live off or have greater flexibility over when you receive your pension income, you may even be able to benefit from the changes in currency exchange rates. Setting up a market order to target a favourable rate means you can transfer your pension savings when the exchange rate is highest and make the most of the best rates. When the exchange rate isn’t working in your favour, you can simply keep the money in your overseas account and avoid losing out.

Read more about your options for transferring money to France (Spot, Market and Forward Contracts).

Taxes on Overseas Pensions in France

Once you retire to France, you will also become tax resident, and this means that you will be liable to pay French tax. As a French resident, you must fill in an annual tax declaration, and you will be liable to pay income tax on your global income, which includes your pension, along with interest on foreign assets, savings and investments. Depending on your situation, you may also be liable to pay social charges on your pension.

Where you will pay your tax and how much tax you will pay on your pension depends on where and how you receive your pension. If your pension is taxed at source, as with a UK government pension, for example, you will pay your taxes in the UK. However, you will still need to declare your pension on your French tax return, and you will receive a tax credit. Private pensions or SIPPs (self-invested personal pensions) will typically be taxed in France.

While tax calculations on global income can be complex, many countries (including the UK) do have double tax treaties in place with France, meaning that you will not end up being taxed twice. However, a general rule of thumb is that on income where the double tax treaty comes into play, you will normally end up paying the higher of the tax rates, whether that be in France or in your country of origin.

Read our guide to Paying Tax on Your UK or Overseas Pension in France.

Another possibility is to transfer your pension into a French or EU pension scheme. A popular example of this is the QROPS (Qualifying Recognised Overseas Pension Scheme), which allows UK workplace or private pensions to be transferred. The obvious benefit to this is that by having a Euro pension, you will no longer be affected by currency fluctuations or transfer fees.

There are also some other potential benefits, including reduced tax liabilities upon death, the ability to take advantage of EU investment choices such as ‘assurance-vie’, and different options on withdrawing your pension.

See our guide to Transferring your UK Pension to a QROPS.

If your pension allows you to withdraw a lump sum, it’s important to consider if and when you receive this lump sum and its tax implications. For example, in the UK, you can take up to 25% of your pension as a tax-free lump sum upon retirement. However, this is only tax-free if you are a UK resident for tax purposes – if you waited until you moved to France, the entire amount would be subject to French income tax (and potential social charges too).

A second option that may be of interest to retirees to France is that it is possible to withdraw your entire pension pot and have it taxed at a rate of 7.5% (including an unlimited 10% allowance) in France. For many expats, this may end up being a tax-efficient option, but it is also subject to certain conditions, most notably that the entire amount must be withdrawn in one payment. So, for example, if you are a British retiree and have already benefitted from your tax-free 25% allowance, this option would no longer be available to you.

These are just two reasons why advance planning is essential if you are planning to retire to France. Read more about the details in our guide to Taxes on Overseas Pensions in France.

So, now that we’ve looked at the different options available, how do you know which is the right one for you? The right answer will depend upon your individual situation and needs, both now and in the future. To help you make your decision, here are our top tips.

Consider your pension options before retiring to France

Don’t wait until you’ve moved or until you’ve reached retirement age to decide on your best options – if you know you want to retire to France, now’s the time to start planning. First of all, find out what your options are regarding your pension plans. Do you have the option of lump-sum withdrawals or transferring to a QROPS? Can your government pension be paid directly into your French account? Is your pension taxed at source? Knowing your options is the first step to figuring out which one is the best one for you.

Make smart choices regarding taxes on your pension

One of the biggest mistakes that expats make regarding pensions is neglecting to understand their tax liabilities. Remember that once you retire to France, you will become liable for French tax, and these liabilities may be very different to what you were used to in your home country. Failing to understand the tax advantages and disadvantages of both countries could be a costly mistake – on the other hand, smart tax planning could mean you avoid hefty tax bills and end up with more money in your pension pot.

Seek professional advice on your financial investments and inheritance

Financial and estate planning can be complex at the best of times, but if you are dealing with finances, assets, and pensions across two (or more) countries, there is a whole other level of legal and tax implications to consider. It’s highly recommended to seek personalised advice from a financial and tax advisor specialising in French retirement planning.

Protect yourself against currency fluctuations

If you don’t have the option of transferring or withdrawing your entire pension pot (as is the case with many government or military pensions), ensuring you get the best possible currency exchange rate and minimise transfer fees will be essential. Visit our Currency Exchange zone for more advice.

Have a plan B

One final consideration is to think about the long-term. What about if you decided to move back to your home country after several years overseas? Unless you are 100% certain that this won’t be an option for you, it’s worth considering the possibility and ensuring your pension plan is protected. Could you transfer your pension back to a different scheme or move your money back without incurring additional fees? Now’s the time to ask those questions and ensure that you are fully prepared.

From applying for residency and understanding your pension options, to life in France for the over 60s – FrenchEntrée is here to help! Let our Essential Reading articles guide you through the whole process, then visit our French Tax, Healthcare, Wills & French Inheritance, and Life in France zones for everything else you need to know.