QROPS France, differences and advantages of a PERP

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The most common French QROPS is a PERP. A PERP is much less expensive than traditional QROPS located outside the French territory, but it has others significant advantages .To begin with, for those who wish to settle in France and stay there for the rest of their lives, having the capital of their pension fund near them and domiciled in the country where they’ll retire is easier and safer. You will find in this post, everything you should before choosing a PERP as QROPS.

A PERP neutralize foreign exchange risk

By choosing a PERP as QROPS, you can transform your UK pension fund in Sterling, into a pension fund in Euro, which removes the exposure and risks associated with currency fluctuations.

Once done, it enables the retirement income to remain stable without suffering changes more or less large.

A PERP simplify administrative procedures

There is another advantage, which is to simplify the tax declaration in France. For those who receive annuities paid outside of France, the calculations are often complex. In many cases the use of an accountant is needed, adding more costs.

Important differences  over a « standard QROPS »

A French PERP can only pay income from the age of 62 (the official retirement age in France) when the plan is wound up.

However, there are exceptions where an individual can receive a full pension before the age of 65, in the following cases :

  • disability ,
  • death of a spouse or partner (PACS) ,
  • judicial liquidation of a company ,
  • and long-term unemployment.

The pensioner is also authorised to take all of the savings accumulated when buying a principal residence for the first time in France. The capital may be received, either in part, or in several payments, and will be subject to income tax.

Taxation of a PERP as QROPS

Since January 2011 , it is now possible to unlock up to 20% of the acccumulated funds when liquidating a PERP at retirement ( A “traditional” QROPS allows the release of 30% of the funds in comparison). The rest will be used to pay a lifetime income as an annuity, which will be subject to income tax. This makes the PERP a little more similar to a UK defined contribution pension plan (such as a « Stakeholder Plan » or a « Personal Pension Plan »).

However, the 20% that are unlockable are not tax-free like the « 25% » are in the UK. These 20% will be subject to French income tax, but there is a mechanism that reduces the impact of the increase in the marginal tax rate.

More specifically, the 20% are taxable under the tax rule as follows: 1/15th of the capital received is added to the total taxable income and the tax generated surplus is then multiplied by 15, giving the additional amount payable.

Note that the 30% unlockable via a “traditional” QROPS would also be taxed according to the same rule as the PERP, when a person is French resident.

Which may also be of interest to customers is that amounts invested on a PERP are not subject to the French Wealth Tax (Impôt Sur la Fortune). A PERP is therefore a good way to avoid paying this tax on pension funds, at least up to age 73 when at that age it becomes compulsory to liquidate the PERP.

Unlock up to 50% of accumulated funds

It is good to know that all PERP providers do not offer the same retirement options. Some PERPs offer more annuity options than others when the plan is liquidated.

According to the client’s situation, it is possible to unlock up to 50% of the accumulated funds over 5 years, by taking the 20% cash option at 62, then taking a boosted annuity during 5 years.

This is a very good way to access half of the funds, which is generally not possible otherwise (the advice of an experienced financial advisor is recommended to help you make the right choice according to your goals and retirement needs).

PERP and tax allowances

By investing in a PERP, the investor receives a tax credit for payments made on it, up to 10% of earned income received the year before.

However, this is limited to 8 times the annual ceiling of the “Sécurité Sociale”, so a maximum deduction of €29 625 for 2013, and a minimum deduction of 10% of that ceiling, so €3,703.

It is also possible to use the 3-year carryback option, which enables one individual to pay up to 3 years worth of unused contributions, particularly useful if someone wants to pay bigger contributions towards the PERP. Note, only regular contributions benefit from this tax allowance, transferred capitals would not.

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