The post-Brexit period

by Alexander Beard, on Jan 18, 2017 10:54:59 AM

The post-Brexit period could already be having implications, particularly as relate to Franco-British relations, in the form of pension fund transferability. Indeed, the English tax administration, HMRC, has just officially announced the withdrawal of French PERs [retirement savings schemes] from the list of QROPSs. Until now, PERs had been preapproved. Already English insurers have been increasingly reluctant to make transfers, citing that French law enables early withdrawals that are not compliant with QROPS regulations.

While formally valid, that argument cannot stand up in practice for the following reasons:

1) Firstly, neither the French law on PERPs [individual retirement savings schemes] nor the English law on QROPSs have changed in recent years. HMRC did not block French products from being listed among authorised QROPSs, nor did the companies holding the pension funds have any qualms about transferring the assets. The reluctance cited, which relies on incompatibility between the French and English laws, only appeared in 2016, and has been confirmed, supported, and even legitimised by HMRC in recent weeks.

2) Secondly, the English law governing pension funds was comprehensively eased, without however extending greater flexibility to QROPSs. From then on, traditional pension plans were far more flexible than the QROPS standard, while remaining less permissive with respect to early withdrawals. It is precisely on this point that PERPs are formally incompatible. As a reminder, early withdrawals are permitted in France in five cases: expiry of entitlement to unemployment benefit, cessation of self-employed work following court-ordered liquidation, disability, death of one’s spouse, and over-indebtedness. Hence the law provides for early release of funds when the beneficiary is in a situation of extreme financial vulnerability. In England, this possibility is only provided for in rare cases of incurable and terminal disease. Any other early withdrawal would lead to a tax penalty of about 55%.

From a legal standpoint, the English law is therefore stricter than the French law. We note, however, that it more easily and more broadly authorises capital withdrawals after age 55 and that, in any event, the spirit of the law is the same: to protect precautionary savings intended for the post-employment period.

3) Lastly, and this is undoubtedly the most compelling argument, that incompatibility is only a possibility. Indeed, the law governing QROPSs provides for tax fines if and only if the beneficiary withdraws his/her capital before age 55. That the legislation of the country to which the funds are transferred provides for an event of early withdrawal is not enough to trigger the penalty. An early withdrawal would have to be made. Furthermore, QROPS regulations provide for a 10-year reporting obligation by the QROPS institution to HMRC in order to verify compliance with withdrawal and utilisation conditions. Therefore the beneficiary is ultimately responsible. This was assuredly the prevailing analysis until 2016.

Given these arguments, one must admit that the recent disqualification of French PERPs as QROPSs is the result of either unwillingness or a political decision.

There are some solutions for expatriates in France and French citizens returning home for transferring their pension funds. Other solutions can be examined depending on the amounts at stake and one’s management preferences. Attention must be paid, however, to the amounts to be transferred. Fixed transfer costs generally make transfers inadvisable for amounts of less than GBP 100,000. Less technical solutions can still be found for amounts ranging from GBP 60,000 to 100,000. Any lower, and QROPS-eligible PERPs will be sadly lacking and ultimately deprive beneficiaries of any economically viable means of transferring their plans.

Guillaume Hublot
Director: France - Alexander Beard (France) SAS