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MONEY

Ask the expert: How to avoid pension scams when you retire to France

It's a sad fact that tens of thousands of English-speakers who have or want to retire to France, or elsewhere in Europe, have lost a lot of money after they were advised into transferring their pensions unnecessarily.

Ask the expert: How to avoid pension scams when you retire to France
Photo: Max Harlynking / Unsplash

It’s often hard to tell good financial advice from bad – let’s face it, it’s all very complicated and most of us are not as financially savvy as we’d like to think and the warning signs are not always obvious.

For most of us, pensions are something we pay into, without actually thinking too hard about what we’re paying into and whether it’s enough to see us through what we hope will be many happy autumn years.

Many foreigners living in France report receiving dozens of cold calls from supposed financial experts, and Brits are particularly targeted because of different rules for UK pensioners who are living outside the UK.

Those transferring pensions from the UK to another country will not be eligible for compensation or help from a UK-based body such as Financial Conduct Authority (FCA) or the Financial Ombudsman.

Protect yourself

In short, British pensioners living in Europe are not protected by UK regulation if they take their pensions out of the UK.

The Pensions Scams Industry Group (PSIG) – a voluntary body set up in the UK to combat pension scams through the publication of good practice in due diligence for trustees, providers and administrators – said that key signs to watch out for are:

  • The person or company recommending that you transfer is not authorised to do so (by FCA);
  • You are offered a financial incentive to make the transfer;
  • The person encouraging the transfer is persistent and pressures you to act quickly;
  • The initial approach about transferring was unsolicited (a cold call, for example);
  • You believe you are transferring to an employer’s scheme but you have no employment link to that employer;
  • You are transferring to an overseas scheme, but don’t live in that country;
  • The scheme will invest in high risk, unregulated or complex investments, often a single type (like forestry, hotels, overseas land or cryptocurrency);
  • You are promised very high returns on the investments;
  • The fees you will pay as part of the transfer are unclear or layered, meaning several people taking their cut or commission;
  • If it looks too good to be true, it probably is – walk away.

“In the UK, the Financial Conduct Authority (FCA) supervises the financial advice industry tightly,” Tom Goold, founder of EU financial adviers Valiant Wealth, told The Local.

“However, Britons living abroad are vulnerable to advisers acting outside UK regulation allowing them to get away with selling unsuitable products loaded with expensive commissions. 

“In recent years the most common example is Brits being persuaded into transferring their pensions to QROPS in jurisdictions such as Malta or Gibraltar.”

Rules for expats

About 150,000 transfers – worth an average of £120,000 each – have been made since 2006, when the UK changed its rules to allow non-residents, such as Britons living in France, to transfer their UK pensions to a third country.

Goold said he believed “99 percent” of those transfers were unnecessary.

“They have typically involved investing via an expensive insurance bond which pays the adviser up to eight percent as an up-front commission,” he said. “The money held inside the bond is then commonly invested into expensive funds which, again, pay generous up-front commissions as high as five percent.”

He said, however, it was wrong to dismiss these schemes as scams as they are not illegal.

“Usually these are legitimate schemes and registered correctly – but simply mis-sold,” he said. 

“It’s often hard to know that you are receiving bad advice as the warning signs are not obvious and advisers will make up a host of convincing reasons to justify a transfer.”

The initialisation QROPS often pops up in discussions about pensions with people who have moved from one country to another. It stands for ‘Qualifying Recognised Overseas Pension Schemes’. UK pensions can be transferred to schemes in a third country that are listed as QROPS on an official HMRC list.

Inclusion on the list does not indicate HMRC approval.

Goold said that only a small number of pension holders would benefit from making such a transfer: “An overseas transfer should only be considered by individuals concerned about their Lifetime Allowance (LTA) which is an extra tax applied on pensions above £1,077,000. 

“Anyone with a pension of significantly less than this and unlikely to reach this level in the future really does not need to allow their pension to leave the UK under any circumstances.”

He added: “A big misselling practice is the unnecessary use of an insurance bond within a QROPS. This serves no structural purpose and is really only there to pay the adviser a big upfront commission. 

“The FCA has banned the use of insurance bonds in pensions in the UK but they cannot extend this to QROPS which fall outside UK regulation.”

Know who pays

Like the PSIG, Goold advises individuals to be wary of cold calls. And he said how advisers are paid for their services would offer a strong hint over where their priorities lie.

“It is important to ask as many questions as possible about fees, surrender penalties – and understanding exactly how the adviser is remunerated that will tell you whether or not you are being badly advised,” he said.

“In the UK this level of transparency is mandatory but offshore advisers could use smoke and mirrors to cover up any commissions they receive and convince clients they are getting a good deal.”

His advice? You get what you pay for – so be prepared to pay a fair fee for complex financial advice.

“People should look for properly regulated fee-based advisers who are remunerated by their clients and not by providers. 

“Such advisers typically charge a fair upfront fee based on advice, work carried out and the implementation of a solution and then an ongoing fee for advice, management and service. 

“Good advisers will charge what is fair and be willing to discuss it openly with the client – just as you would for other services in life. Under this model the adviser is committed to making the long-term relationship work as opposed to a commission-based model most commonly seen in pension transfers where the adviser can squeeze as much as 12 percent commission on day one and then move on to look for their next sale.”

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For members

TAX DECLARATION

Late fees, fines and charges: What you risk by missing French tax deadlines

The deadlines for the annual French tax declaration are upon us, but what are the penalties if you either miss the deadline or fail to file your return at all? We take a look at the sanctions.

Late fees, fines and charges: What you risk by missing French tax deadlines

The annual Déclaration des revenues – income tax declaration – involves virtually everyone in France filling out a form giving detailed information on their income to French tax authorities.

If you live in France, it’s almost certain that you will have to complete this – even if you’re a salaried employee and your tax has already been deducted at source, or if all your income comes from outside France (eg a pension received from the UK or USA).

There are only a very few exemptions to the requirement to fill out the tax declaration and they are listed here

Declarations for the 2021 tax year opened in April 2022 and the deadline is either late May or early June, depending on where you live – find the full calendar here

But what happens if you miss the deadline?

For most people there is a staggered system of late charges.

If you are less than 30 days late your overall tax bill can be increased by up to a maximum of 10 percent.

Once you receive a notice of late payment, the overall bill can increase by up to 20 percent, or 40 percent if you have still not filed within 30 days of receiving the later payment notice.

You will also be charged interest on late payments.

What if I don’t pay income tax in France?

If you have no taxable income in France – for example your only income is a pension from another country – then you still have to fill in the declaration.

If you file late the increases cannot be applied, since your tax bill is €0, but you can instead be liable for a late fee of €150.

What if I have exceptional circumstances?

If you know that you will not be able to file in time, you can ask the tax office for a remise gracieuse (remission) in order to avoid late fees and penalties.

You will need to outline your reasons for not being able to file in time and while there isn’t a list of accepted excuses, the reason must be exceptional circumstances such as serious illness or the death or a loved one.

If you have previously missed deadlines, the tax office will be less likely to accept your request.

The request should be made by June 29th either in person at the tax office or through the messaging system in your online tax page.

What if you don’t declare everything?

If you have not declared income which is subsequently discovered by authorities, the increase in your overall tax bill can be up to 80 percent – the maximum penalty is usually reserved for people who have deliberately tried to hide parts of their income.

We have a full guide to what you need to declare HERE, but the basic rule of thumb is that you need to declare everything, even if it is not taxable in France, eg income from a rental property in another country.

France has dual taxation agreements with countries including the UK and USA so if you have already paid tax on income in another country you won’t need to pay more tax in France – but you still need to declare it.

What about foreign bank accounts?

Another item that frequently catches out foreigners in France is overseas bank accounts.

If you have any non-French bank accounts, you need to list them on your tax declaration, even if they are dormant or only have a very small amount of money in them.

This also applies to any foreign investment schemes you have, such as life insurance policies. 

The penalty for not listing accounts is between €1,500 and €10,000 and that applies for each account you fail to declare. 

What if I made a mistake on my declaration?

In 2018 France formally enshrined the ‘right to make mistakes’, giving people the right to go back and correct their declarations without attracting a penalty.

So if you realise you have missed something off or added the wrong info you can either go back into your online declaration and correct it or, if you file on paper, visit your local tax office.

However the ‘right to make a mistake’ does not extend to late filing.

What if I didn’t make a declaration?

The French tax system is often confusing for foreigners, with many people wrongly assuming that if they are not liable for tax in France then they don’t need to fill in the declaration.

For people who persist in not making the declaration, even after the arrival of the notice of default, tax authorities can make an estimate, based on earnings and lifestyle, and present the bill.

However for new arrivals in France it’s likely that they will not be registered with the tax office and will therefore never receive a notice. 

In this instance it’s always better to come clean – if you have made a genuine mistake and you approach the tax office  (rather than waiting for them to watch up with you) you will usually be dealt with quite leniently. 

How can I get help?

If you’re struggling with the system, there are ways to get help.

The tax office has an English language information page here, and a dedicated helpline for internationals on + 33 1 72 95 20 42.

You can also visit your local tax office, every town has one and you can simply turn up without appointment and ask for help (although if the office is small and your query is complicated you may need to make an appointment for the full discussion). Surprising as it may sound, employees at the tax office are generally pretty friendly and helpful and can guide you through the forms you need to fill in.

If your tax affairs are complicated and/or your French is at beginner level, it may be better to hire an accountant to ensure that everything is in order. You can find some tips on getting professional help HERE.

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