How To Maximise Your UK Pension Benefits In The US
LEARNING OBJECTIVES
At The Wealth Genesis, we provide high quality, relevant and up-to-date retirement advice to British Expats residing in the USA.
IN THIS ARTICLE, YOU WILL LEARN THE FOLLOWING:
What happens to your UK pension when you move to the US
Why UK pensions usually under-perform IRA and 401k accounts
How to maximise your pension benefits abroad
Important factors to consider before transferring your UK pensions
How UK pensions are taxed in the US
What Happens To My UK Pensions When I Move To The US?
The first thing to understand, is that your pension plans remain exactly the same once you move. The only thing you need to do upon relocating is informing your UK pension provider of your new address.
Other than that, your funds will remain invested exactly as they were prior to leaving, whether this is in mutual funds, ETFs or lifestyle investment choices.
However, there are 2 key crucial things that British Expats need to understand that are triggered by moving to the USA.
If you had a UK based financial adviser, legally they may be no longer able to advise you. This is because US residents need to seek advice from an SEC regulated advice firm, like The Wealth Genesis.
You may no longer have access to the same benefits that you had as a UK resident. By this, we are specifically talking about the 25% pension commencement lump sum (25% tax free cash payment) and full-flexible access draw-down. To understand these points in greater detail, you can read more on our US residents page, or schedule a free initial consultation.
Maximising UK Pension Benefits in The US
Typically, UK pensions are heavily invested in the UK stock market, with the vast majority of pensions having most weight in the FTSE 100 (the 100 largest companies in the UK). Whilst the UK is a good stock market to invest in for low volatility, historically it has drastically under-performed the US, Europe and Emerging Markets.
This is because only 2% of the UK stock market is composed of 'tech stocks', or long term growth stocks.
To improve investment performance as a US resident, consider altering your portfolio to have more weight in other global markets, such as the US and developed Asia for example.
Note, investing in different markets comes with different risks, and always seek professional advice before making wholesale changes to your pension portfolio, particularly given these accounts are typically there to fund your retirement. If you are close to retirement, it usually makes sense to have a more cautious portfolio to reduce volatility.
Which Pension Is Best For British Expats In The US?
If your existing pension provider (Scottish Widows, Aviva, Aegon, Standard Life etc.) is able to offer you the following pension benefits, there is no pressing need to consider moving your pension:
Full flexibility in retirement to take your money when you want, and as much as you want (known as full flexible access draw-down)
Ability to fully manage and change your retirement accounts in line with your investment goals and attitude to risk
The possibility of investing in USD to mitigate or reduce long-term currency risk
If one of these conditions is not met, you should consider transferring your UK pension to the US.
The Best SIPP For US Residents
A SIPP is a self-invested personal pension, and is a type of pension which gives the holder full flexibility and access to their retirement funds abroad. These are the most common type of pension in the UK, and are usually set up when an individual is looking to consolidate multiple schemes for ease of management and access.
A SIPP built for US residents will provide you with all of the essential retirement benefits that you will need to secure your retirement outside of the UK. To understand more, see our International SIPP page, as well as an article detailing the best US SIPP.
US Tax Planning Considerations
A common question is how UK pension income is taxed in the United States?
Simply put, UK pension income is taxed at your highest marginal rate of income tax. In simple terms, it just means that this is classed as an income payment, and added onto your total income return.
A unique feature of UK pensions is the ability to receive a 25% tax free payment from your pension pot. This is tax free in the UK, and not necessarily in the USA, and we strongly advise clients to take regulated tax advice as this can vary state by state. There is contrasting information online regarding this payment from various US expats with their own experiences. Taking advice on the matter will ensure you do not fall foul of any tax rules and regulations.
Financial Advice For UK Expats In The US
The Wealth Genesis is a fully independent, SEC regulated investment adviser, and all our US team is professionally qualified to provide advice both in the UK and the US, ensuring a comprehensive understanding of all cross-border issues that may arise.
To understand how we can help you with your retirement in the US, contact us below using the enquire button, or alternatively schedule a free initial consultation using the diary link.
