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Reader Question: I only worked in the UK for around three years before moving to France, where I have lived for 25 years. I have a small amount of UK pension from a job but have left it untouched for a long time. As I am expected to benefit from a French state pension, can I take this small amount in one lump sum early?

You likely have what is known as a ‘small pot’ pension, one of more than 20 million small private pensions in the UK.

This would be the case if you worked for an employer in the UK for a few years who paid into a pension for you. 

Note that this is a separate issue to any National Insurance payments you will have paid that would potentially go towards a state pension entitlement (you need 10 years of paying in to benefit from even a reduced UK state pension, but note that years of paying into a French pension can also count towards this under pension aggregation rules that the UK remains signed up to post Brexit). 

It is possible to cash out a small pot UK pension under certain circumstances.

Exact rules vary depending on the pension scheme the money was paid into, but usually there is a lower age limit to take the money of 55. In April 2028, this will rise to 57.

From this age, it may be possible for pensions to be taken out early as a lump sum.

‘Small pot’ pensions are those worth no more than €10,000.

Those who have worked for more than one company in the UK may have several such ‘small pots’.

When cashing out a small pot pension, usual UK tax rules mean that only the first 25% is tax free, with the remaining 75% being subject to tax. 

Having said this, according to the UK-France double taxation convention, UK pension income (other than government service pensions) of residents of France should only be taxed in France. 

As UK pension providers usually deduct tax at source, you should try, if possible, to

arrange with them to pay out to you gross to avoid being taxed twice.

If this is not possible, then once a pay-out has been made to you with tax deducted at source you need to submit the UK’s Form France Individual DT (double taxation), which can be found with a search at gov.uk.

The form, which has to be stamped by your French tax office, allows for a refund of overpaid tax and for a ‘no tax’ (NT) code to be issued, if appropriate, for any future payments from the same source.

People registered for the UK’s Self Assessment system can alternatively claim for the overpayment via their UK tax return (using the Residency/Remittance section and help sheets HS302 or HS304).

The pension income also has to be declared in your French tax return, and may be taxed at a special low 7.5% ‘lump sum’ rate if you opt for this.

Consider your options 

To withdraw the pension, you will have to contact the company responsible for holding it and ask to take it. 

This may be the best option if the pension only has a small amount in and you believe you will be sufficiently covered by other pensions, such as a French one, once you reach retirement age. 

The pension, as a UK one, will be withdrawn in pounds sterling, meaning it will have to be exchanged into euros, potentially leading to more fees through currency exchange.

However, withdrawing the pension early is not always the best solution. 

If you have any other UK pensions (not including state pension), it could be worth combining the pots together for a single, more valuable pension to give you an annuity. 

This could provide greater yields than keeping them in separate pots, and if you do not need the money now, help it rise in value.

It is also possible to transfer UK pension money into a non-UK ‘Qrops’ scheme, however there are not currently any recognised schemes in France and this is more typically done for large pension amounts (a list of eligible overseas pensions meeting the criteria is available ). Furthermore, a 25% transfer charge applies. 

Lastly, you may be able to leave the pension in the small pot if you believe it is performing well, and then have it pay out as a standard pension once you reach retirement. 

Unique circumstances 

Note that in some circumstances a small pot pension can be taken out in one lump sum without paying UK tax on it. 

This applies to people who are terminally ill and have been given less than 12 months to live, or if you are over 75 and it does not go above your ‘Lump Sum and Death Benefit Allowance’. 

Many companies online offer to help you take your pensions early, but you should approach any such offers with caution.

If in doubt, consider taking professional financial advice before deciding on the best course of action.