Understanding How Your UK Pensions Work In The USA
LEARNING OBJECTIVES
We provide high quality, relevant and up-to-date retirement advice to British Expats in America.
IN THIS ARTICLE, YOU WILL LEARN THE FOLLOWING:
How UK pensions work in America
Questions to ask your UK pension provider
Why you can’t transfer your UK pensions into an IRA or 401k
Your transfer options as a US resident
With close to a million British Expats living in the United States, whether for work or for retirement, one of the most common concerns relates to their UK pension pots. This article will delve into UK pension planning for US residents, and how structuring your finances correctly can complement your overall financial strategy.
UK Pensions In America
So, how do UK pensions work in the United States?
The investments held will remain as you left them. Leaving the country does not affect this.
Any income received from your pension is taxed at your marginal rate of income tax in the US.
Note, if you do not have an NT Code (Nil Tax Code) in place with HMRC, you may also have UK tax deducted at source by HMRC. Make sure you speak with a regulated financial adviser so you do not have to waste time claiming tax back from the UK (this can take up to 6 months).
Your pension will only be held in Pound Sterling if it is with a UK provider, and will only pay out in Pound Sterling if it is with a UK pension provider.
Your provider may no longer provide you with full-flexible access draw-down as a US resident. This means you cannot access your pension money as and when you wish, and you may have to take the whole amount out at once, which could trigger a large tax liability in the US.
If you had a UK financial adviser managing your pension, they will no longer be able to do so, unless they have an SEC licensing in place to provide regulated advice to US residents.
How To Complete A UK To US Pension Transfer
The first thing to understand is that you cannot bring your UK pension account directly into the USA, nor can you transfer it to any existing IRA or 401k account. This is because HMRC does not deem UK/US pensions as like-for like (they operate under different rules).
There are also no qualifying recognised overseas pension schemes (QROPS) based in the USA, meaning you cannot utilise a QROPS without incurring the Overseas Transfer Charge (OTC), which is a penalty of 25% of your total pension value for moving your pension outside of the UK.
The only viable option for British retirees in the USA is an International SIPP for US residents, or also known as the US SIPP.
The US SIPP
The US SIPP, whilst still based in the UK and regulated by the Financial Conduct Authority (FCA), is a type of personal pension plan specifically designed and tailored towards expats living in the United States.
This means it provides the following key benefits to US residents:
Full flexibility in retirement, meaning you can draw down your funds whenever you want, and as much as you want.
Ability to hold investments directly in USD, helping to protect you against currency risk and fluctuations in the value of the Pound Sterling.
Receive pension benefits free of taxation from the UK through the use of an NT code.
Receive professional, US regulated investment advice to manage your retirement fund on an ongoing basis.
Have access to the lowest cost tracker funds available from the likes of Vanguard, Blackrock, Fidelity etc.
Expat Financial Adviser For US Residents
The Wealth Genesis are an independent, regulated and specialist cross-border wealth management firm who deal directly with British expats residing in the United States.
We charge a flat-fee for all our UK pension transfers, with zero commissions, lock-ins or hidden fees.
To understand how we can help you consolidate and grow your UK pensions in the US, book a free initial discovery meeting using the diary link below.
