S1 Health Cover or French Pension?
Tuesday 04 October 2016
Retiring expatriate business owners in France may have to make the choice of either taking S1 health cover from their country of origin or their French pension.
If you start a business or take salaried employment in France, on your retirement you earn an entitlement to a pension.
However, obtaining such a pension does have implications on the nature of your health cover and your tax status.
This is because, under European law, if you are in receipt of a French retirement pension you become the responsibility of the French State for the purposes of health and social security rights, despite the fact that you may also be in receipt of a pension from your country of origin.
That being the case, EEA nationals in receipt of a French pension would not be eligible for an S1 certificate of health cover from their home country.
The S1 would otherwise give a retired person health cover in France through the reciprocal relationships that exist within the EEA.
Now, in practice, it makes no difference to the nature of the health care you receive, as S1 recipients obtain health care on the same terms as French nationals.
Nevertheless, it does have tax implications, for those with an S1 escape the payment of social charges on their pension income.
Those with a French pension are liable for social charges at the rate of 7.4% on all their pension income, including pensions from outside of France.
Not all pensioners are caught by this rule, for UK government service pensions escape the charges, as such pensions are solely taxable in the UK.
The social charges are deductible against income tax at the rate of 4.2%, but less than half of all households in France actually pay any income tax.
In addition the rate of social charges is 4.3%if you pay less than €61 in income tax and there is complete exemption from the social charges for low-income households.
No French Pension Entitlement
It does not necessarily follow that if you start a business in France you will obtain pension rights. This applies particularly to those who run a business as a micro-entrepreneur, for they need to generate a minimum turnover to be granted such rights, a point we have covered in these pages in the past, and which we will update in our November Newsletter.
If the business is so small that the pension threshold is not at any time reached then on retirement you would be entitled to obtain health cover through the reciprocal S1 arrangements, provided you were in receipt of a State Pension from your home EEA country.
However, as one of our readers recently reported to us, the UK Department of Work and Pensions (DWP) at Newcastle appear to be toughening their stance on granting S1 certificates to former business owners in France, even where no pension entitlement exists in France.
The reader concerned had previously been a micro-entrepreneur but with no French pension rights, and so sought an S1 certificate from the UK. He was advised by the DWP that because he had worked and paid social security contributions in France he was the responsibility of the French state.
This response is contrary to European law and should be challenged. Article 24 of European Regulation (EC) No 883/2004 makes it clear that only a pension entitlement from your country of residence means you are the responsibility of that country.
This is confirmed by general guidance issued by the European Commission, which states:'If you receive a pension from the country where you live you and your family are covered by that country's healthcare insurance system — whether or not you are also receiving pensions from other countries.
If you do not receive a pension or any other income from the country where you live you belong to the healthcare insurance system of the country where you were insured for the longest period of time’.
We phoned the DWP at Newcastle to query the point, when they assured us that where a retired former business owner in France had no pension entitlement in France they would be entitled to an S1, provided they were entitled to a UK State Pension. Clearly, 'operator error' in the reply given to our reader.
Of course, all of this may well be academic for UK nationals should the UK finally leave the EEA, but it will be several years at least before that occurs, even should it occur.
French Pension Entitlement
If you are likely to be entitled to a French retirement pension, what are your options?
Under EU regulations you are supposed to make application for both your home and host country pensions from the country in which you last lived and worked. In theory, your host country are then responsible for processing both pension applications and administering payment of your pensions.
In practice, the Members States have yet to get their act fully together on unified cross-border pension administration, but over time that is bound to change.
So the first step must be to try and establish just what is likely to be the level of your French pension and compare that to the additional social charges you are likely to pay.
You can ask your pension fund in France for an estimate of your pension, although with the innumerable problems that have beset the Régime Social des Indépendants (RSI),and the Caisse Interprofessionnelle de Prévoyance et Assurance Vieillesse (CIPAV) an early response should not be anticipated. See our articles The 'Racket Social des Indépendants' and Business Owners and CIPAV for more information.
If the result of the comparison is not to your liking, then one solution is simply not to take receipt of the French pension!
The French system does not actually oblige you to take the pension, and there is always the option of deferral. You can make application for a pension, to establish with precision the amount you would receive and if you do not like it, you can advise the authority that you do not wish to take it up. Having said that, the portals do provide estimates of your likely pension.
However, on your (now telephone) application for an S1 certificate from the UK you may well be asked if you have a French pension, and/or if you have worked abroad; an affirmative answer may well result in you being advised to apply through the French social security agencies for your pension.
In other words, although you may not take up your French pension, your entitlement to one may oblige you to forgo your right to an S1. In practice, it is clear from the experiences of many readers that they have been able to obtain an S1 despite having gained an entitlement to a pension in France, which they did not take up, although if this was entirely within the framework of the rule on social security coordination is questionable. Nevertheless, we are also aware of other readers where either the NHS has later withdrawn their S1 on finding out they have a French penson, or where their local CPAM has been unwilling to accept the S1 because of the pension.
In short, if you are entitled to a French pension, you are likely to be obtain an S1.
Status of Spouse
Whichever route you take, in the case of a couple where only one of them has worked in France, no requirement exists for the non-working spouse to making application through the French authorities for their own home country pension.
By extension, this would also grant them access to an S1, and thereby exemption from social charges on their pension.
You would normally receive an application for a UK State Pension four months before you reach the age of retirement.
We would be very interested to hear from you about your own experiences of this issue. You can contact us at firstname.lastname@example.org