France is the second most popular destination for Britons who retire abroad. It has many attractions, not least a more relaxed way of life, attractive locations, the cuisine and also the proximity to the UK. For many people, moving to France fulfils their dreams and they finish their working lives planning for the move and eagerly looking forward to the day of their retirement.
Moving anywhere aboard is always a big step and you want to keep money worries to a minimum. You will certainly benefit from taking the time to review your finances at the planning stages of your move to France. One key issue to establish is whether your pension income will be sufficient for your needs or if you need to re-organise your savings to provide an income. Another is whether you should place your money in different structures to make it work most effectively, and be as tax efficient, as possible in France.
Most people will have a pension and possibly other forms of income and capital but while it may be enough to maintain the lifestyle that you are used to living at the moment, will it be enough in the future?
The average retirement age used to be twenty years but this is increasing with advances in science and medicine. Hopefully you’ll have thirty years or more to enjoy your ‘third age’. After working hard for your money, now is the time to reap the rewards – but you will need a careful plan to ensure you don’t outlive your accumulated income.
The key to financially surviving retirement in comfort is to make sure your money doesn’t run out before you do. There is nothing scarier than having no money in your later years, especially if you are in a foreign country and don’t have state welfare to fall back on, or relatives close by to look after you.
It is therefore essential for your long-term financial security to ensure that your money will last you for the rest of your life; keeping you at the level of comfort you are used to and with enough in the bank to cover unexpected expenses like medical bills and house repairs. In any case, isn’t it about time your money began working for you?
Keeping up your lifestyle
The normal guideline for people calculating how much income they will need in retirement is to expect their expenses to be 80 per cent of those they had when they were employed. This is because they no longer have costs associated with commuting to work, buying lunches every day, purchasing clothes specifically for work etc. However, because you’ve moved to a new country your expenses will be different to those in the UK so you need to study the cost of living in France.
In many ways life is cheaper in France, but if you take up new hobbies, especially expensive ones, you will need money for this. You may also be eating out more at one of the attractive French cafés, bistros or restaurants. Now that you have more time you may decide to travel more and simply going back and forth to the UK on regular visits to family and friends will add up, especially if you need to pay for hotels and car hire.
It is also essential to ensure you have enough money set aside for emergencies such as sudden home repairs or health treatment.
Defend against inflation
Retirees often tell me that they do not want to take any risk with their money. They reject many investments outright because they feel they are risky and their capital won’t be protected. Yet I rarely hear anyone talk about the risks of inflation and this is one key risk retirees need to be aware of and plan to avoid. Inflation should not be ignored.
The fact is that when you leave your money in the bank (or a building society) it is vulnerable to being eroded by inflation. This means that each year your money will be worth less and less. The effect is that you can buy less with it next year than this year, even less the year after, even less the year after that and so on. Looking ahead ten to twenty years, you will have lost a substantial portion of your money in terms of how much it can buy you. In fact, it could be as much as 30-50 per cent!
If you have a deposit account it will be earning interest, but much if not all of it will be wiped out by inflation, regardless of what your bank statement tells you. Leading economists argue that various individuals’ personal rate of inflation – ie the rise in the cost of the goods and services you spend your money on – is much higher than the official inflation statistics. For example, when UK inflation was 3 per cent earlier this year, it was calculated that the rate for middle classes was 10 per cent and for retired people 9 per cent! It’s the same in France; most people find their cost of living has gone up more than official data indicates. For example, health insurance can increase by as much as 10 per cent each year.
Nobody wants an investment where you’d lose 9 per cent to 10 per cent annually, yet few people realise the dangers of leaving all their money on deposit.
People who retired to the south of France twenty years ago who thought they had plenty of money to live on for the rest of their lives may find that they have run out of money and return to live with family in the UK. With appropriate planning you can prevent this happening to you.
Pension income
Depending on the type of pension you have and whether you have started drawing income from it, there may be ways to improve your pension fund and earn more from it. It’s worth discussing your options with a financial adviser based in France, or a UK firm with thorough, up-to-date knowledge of French regulations, who understand how pensions are taxed in both the UK and France to see if more advantageous arrangements can be made.
Tax planning
If you want to protect your money you’ll need to pay as little tax on it as possible. In France you must declare and pay tax on your worldwide income and gains (and you must declare bank interest earned in the Channel Islands and Isle of Man even if you are paying the withholding tax there). Failure to do so is a very risky strategy these days. It is more than likely that the French authorities will find out about it as more and more governments target people who fail to declare interest earned in offshore bank accounts.
There are various ways you can structure your money in France to legitimately keep your tax obligations to the lowest possible. Tax rules and rates do change quite often (in fact, changes are afoot in France as I write this) and you need to keep on top of these to achieve the best possible tax advantages if you move to France.
Estate planning
Have you planned what will happen to your estate once you pass on? Will your beneficiaries be liable for inheritance tax in France and also possibly in the UK? Luckily it looks like the succession tax rules in France are improving, but depending on who your heirs are there may still be tax to pay. In any case, you may be able to use structures to avoid or mitigate both French succession tax and UK inheritance tax.
There are currently no proposals to change the antiquated French succession law that forces parents to leave a major proportion of their wealth to their children rather than to their surviving spouse or partner, and you may wish to take steps to avoid this law and ensure your money is distributed as per your instructions.
The majority of retirees want to feel that their money is protected and that they have enough income to live on comfortably. That is why the focus these days for those in retirement is wealth preservation and income provision. Taking advice from an investments and tax expert is the first step towards this.
Bill Blevins is Managing Director of Blevins Franks International, one of the largest independent financial advisers, which specialises in advising retired expatriates in southern Europe