What can I do with my UK pension fund when retiring to France?

If you are approaching retirement, and looking to draw an income from your UK personal pensions, there are several options.

UK options

As you will probably be aware, you can buy an annuity. This is where you exchange your fund for a guaranteed income, payable for life. There are various types of annuities and you can build in a pension to your spouse, a guarantee period, or a yearly increase.

Annuities are suitable for people who want a secure income, and do not require control over their pension fund. It is no longer compulsory to buy an annuity at any time.

The alternative is where an income is taken directly from the fund – this is called “drawdown”. This offers several advantages – you retain control of your fund, there are greater options for your spouse in the event of your death, and you can always buy an annuity if your circumstances change and require a secure income.

However, drawdown is not suitable for many people since it provides an income which is not guaranteed – and you can end up with a decreasing income if investment performance is poor.

The maximum you can withdraw under drawdown is normally in line with an annuity, but if you can demonstrate your receive guaranteed pension income of £20,000 or more (through state pension, occupational pensions, and annuities) then there is no limit to the level of withdrawals (although the withdrawals will be taxable).

Previously an annuity had to be purchased by age 75. Now, however, you can continue with drawdown indefinitely. If drawdown is suitable for you, then the structure of a Self Invested Personal Pension (SIPP) might be of interest.

SIPP

A SIPP is a type of Personal Pension. With Personal Pensions, your contributions or transfers are invested in whatever funds you have chosen. A SIPP is a ‘wrapper’ in which there is a trustee bank account that acts as the control centre. It is from here that income is paid, and investments are bought and sold.

It is possible to have a trustee bank account that is euro-denominated, but the majority of SIPP providers are not able to accommodate this. We have however negotiated with specialist SIPP providers to enable the SIPP bank account to be euro-denominated for our clients.

This means that a UK based pension fund can hold (and pay income in) euros, and if an appropriate euro-denominated investment is held, your entire plan is euro-denominated – which removes any currency risk to your income.

Transferring your pension abroad

You could transfer your pension fund out of the UK to a foreign pension scheme – a Qualifying Recognised Overseas Pension Scheme (called QROPS). This can have several benefits. You could have control of your fund, and could have income paid in euros. It may even be possible to pass the fund to your wife or children in the event of your death.

Historically, offshore pension funds have also had more costly and complex charging structures, and as transferring pension funds abroad is not regulated by the FSA, you may not be afforded the same protection if things go wrong. It may also not be possible to transfer the funds back if you return to the UK.

However, transferring the fund overseas can be suitable for people who wish to pass pension funds to their children in the event of their death.

Summary

Transferring your pension abroad can be suitable for some people, but there are options available within a UK structure that might provide you with sufficient flexibility and remove exposure to currency fluctuations. At retirement, it is important to consider all the options for your pension fund, taking into account your requirements, circumstances, and your objectives.

Revised: April 2011

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