International SIPP | Still The Best Expat Pension?

LEARNING OBJECTIVES

We’re passionate about providing free, high-quality and up-to-date financial information to Expats around the world.

IN THIS ARTICLE, YOU WILL LEARN THE FOLLOWING:

What is an International SIPP
Why having flexible pension income as an expat is non-negotiable
The benefits provided by a wide, unrestricted investment choice
Why currency risk is an issue for Expats
The benefits of pension regulations
What safeguards are provided by the FCA & the FSCS
How consolidating multiple pensions can simplify retirement abroad
What to look out for in an International SIPP
Red-flags when taking expat financial advice

An International SIPP, or Self-Invested Personal Pension, is a retirement savings solution specifically built for non-UK residents to transfer UK pensions abroad.

This expat pension account offers a great deal of flexibility, investment options and portability.

Unlike a QROPS (qualifying recognised overseas pension scheme) the International SIPP is based and regulated in the UK.

If you're considering an expat pension transfer, be sure to research both types of schemes before proceeding with any UK pension transfer.

This article will run through the key features of the International SIPP, along with additional expat financial advice.

Full Flexibility

Since Brexit, traditional UK pension providers are no longer offering full-flexible access draw-down to expatriates.

The major providers like Aviva, Aegon, Scottish Widows, Standard Life offer expats one of 2 options for receiving their pension benefits abroad.

1) Take the whole pension as one lump sum.

2) Take 25% PCLS (pension commencement lump sum) and the remaining 75% is used to automatically buy an annuity.

The issue with the first option is that taking your entire pension as a lump sum abroad will likely trigger a huge tax liability in your country of residence.

The second option provides zero flexibility in draw-down. Not only that, but annuity rates are currently not attractive, meaning the annual payment will be low compared to the value of the pension.

Full flexibility in pension income is vital for UK expats retiring abroad for several significant reasons, something which the International SIPP offers to expats.

The ability to have control over their pension income offers expats a range of financial and lifestyle benefits that can greatly enhance their retirement experience.

Here's why full flexibility in pension income is important for UK expats retiring abroad:

Adaptation to Local Cost of Living: The cost of living varies widely from country to country. Full flexibility allows expats to adjust their pension income based on the local cost of living, ensuring they can maintain a comfortable lifestyle without overspending or compromising on essential expenses.
Currency Exchange Fluctuations: Exchange rates between the British Pound (GBP) and the local currency in the expat's country of residence can fluctuate significantly. With pension income flexibility, expats can choose when to convert their pensions, aiming to capitalise on favourable exchange rates and mitigate potential currency-related losses.
Bespoke Financial Planning: Every individual's financial situation and retirement goals are unique. Full flexibility enables expats to create a personalised financial plan that aligns with their specific needs, risk tolerance, and investment preferences. They can allocate funds across different investment vehicles, such as savings accounts, investments, or property, to optimise their financial strategy.
Tax Efficiency: Tax regulations vary from one country to another. Having the flexibility to structure pension income in a tax-efficient manner can lead to significant savings. Expats can potentially reduce their tax liabilities by managing the timing and amount of withdrawals based on local tax laws and international tax treaties.
Life Events and Emergencies: Life is unpredictable, and emergencies or unexpected expenses can arise. Full flexibility in pension income allows expats to access additional funds when needed, providing a safety net for unforeseen circumstances.
Estate Planning: Expats can use pension income flexibility to plan their estate and ensure that their loved ones are provided for after their passing. They can manage their pension funds in a way that aligns with their inheritance goals and ensures a smooth transfer of assets to beneficiaries.
Cash-flow Modelling: Some retirees may initially underestimate or overestimate their financial needs. Pension income flexibility allows them to adjust their withdrawal rates based on their actual spending patterns, avoiding the risk of overspending early in retirement.
Peace of Mind: Ultimately, full flexibility in pension income provides expats with peace of mind, knowing they have the autonomy to manage their finances according to their evolving circumstances.

Wide Investment Choice

Having access to a diverse range of investment options within expat pension accounts can significantly enhance financial security and the overall retirement experience.

Here's why a wide investment selection is important for expats retiring abroad:

Risk Diversification: A diverse investment portfolio helps spread risk across different asset classes, reducing the impact of poor performance in any one area. This diversification can provide a more stable and consistent return on investment, which is especially important for retirees who rely on their pension income to cover living expenses.
Adaptation to Local Economic Conditions: Different countries have varying economic conditions, political stability, and market trends. Expats need the flexibility to allocate their investments in a way that aligns with the economic situation in their host country. A wide range of investment options allows them to make informed decisions based on local factors.
Inflation Hedge: Inflation can erode the purchasing power of pension income over time. A well-constructed investment portfolio with assets that historically perform well in inflationary environments can help expats maintain their standard of living and protect their retirement savings from the effects of rising prices.
Income Generation: Depending solely on a fixed pension income might not be sufficient to cover all expenses, especially in locations with a higher cost of living. A diverse investment portfolio can include income-generating assets such as dividend-paying stocks, bonds, and real estate investment trusts (REITs), providing additional sources of income.
Bespoke Risk Tolerance: Every individual's risk tolerance is unique. Expats should have the freedom to choose investments that match their risk profile and comfort level, ensuring their portfolio aligns with their financial goals and emotional preferences.
Long-Term Growth Potential: Retirement can span several decades, and having a mix of investments with growth potential can help expats preserve and potentially increase the value of their pension assets over time. Assets such as equities and growth-oriented funds can play a role in achieving this objective.
Changing Life Circumstances: Retirees' financial needs and goals can change due to unforeseen circumstances, such as health issues, family changes, or shifts in lifestyle. A diverse investment portfolio can be adjusted to accommodate changing priorities.
Estate Planning: Different investment options have varying implications for estate planning and inheritance. Expats can structure their investments to align with their intentions for passing on wealth to heirs and beneficiaries.

Maximum Protection & Regulation

Having an international Self-Invested Personal Pension (SIPP) that is regulated by the Financial Conduct Authority (FCA) and covered by the Financial Services Compensation Scheme (FSCS) should be a non-negotiable for expatriates.

This combination of regulatory oversight and compensation protection offers expats a high level of financial security and peace of mind while managing their pension investments abroad.

Here's why having such an international SIPP is crucial:

Regulatory Oversight: The FCA is a reputable financial regulatory body known for its strict standards and regulations. An international SIPP regulated by the FCA is subject to rigorous compliance requirements, ensuring that the pension provider operates transparently, ethically, and in the best interests of the pension holders. This oversight helps protect expats from potential fraud, mismanagement, and malpractice.
Investor Protection: FCA regulated pension providers must adhere to stringent rules designed to protect investors' interests. These rules cover areas such as transparency in fees, fair treatment of customers, and proper management of investment funds. Expats can feel confident that their investments are managed according to established industry standards, providing their SIPP is FCA regualted.
Complaint Resolution: In case of any disputes or issues, having an FCA-regulated pension provider means that expats have access to formal channels for resolving complaints. The FCA provides a mechanism through which individuals can seek redress if they believe they have been treated unfairly or if their pension provider fails to meet the required standards.
Financial Services Compensation Scheme (FSCS) Coverage: The FSCS is a UK government-backed scheme that offers compensation to consumers if a financial services provider becomes insolvent or is unable to fulfill its obligations. Having an international SIPP covered by the FSCS provides an additional layer of protection, ensuring that if the pension provider faces financial difficulties, expats may be eligible to receive compensation up to a certain limit.
Risk Mitigation: Retirement planning involves managing various investment risks. While investments inherently carry some level of risk, an FCA-regulated international SIPP offers safeguards against the risks associated with improper conduct, negligence, and mismanagement on the part of the pension provider.
Cross-Border Assurance: Expats often deal with complex cross-border financial matters. An FCA-regulated international SIPP provides a recognised and trustworthy framework for managing pension investments across different jurisdictions, helping expats navigate legal and regulatory challenges more confidently.
Safeguarding Retirement Savings: For many expats, their pension savings represent a significant portion of their financial well-being during retirement. FCA regulation and FSCS coverage help ensure that these savings are protected from unexpected events that could jeopardise their retirement security.
Peace of Mind: Overall, having an international SIPP regulated by the FCA and covered by the FSCS provides expats with peace of mind. It alleviates concerns about the safety and reliability of their pension investments, allowing them to focus on enjoying their retirement years without unnecessary financial stress.

Consolidation & Transfer UK Pensions Abroad

A notable feature of an International SIPP is the ability to transfer or consolidate UK pensions.

Here are the key advantages of pension consolidation into a single SIPP:

Simplified Management: Dealing with multiple pension providers, statements, and accounts can be complex and time-consuming. Consolidating your pensions into a single SIPP streamlines your retirement planning by reducing paperwork, administrative tasks, and the need to track multiple accounts.
Better Visibility: Having all your pension assets in one place provides a comprehensive view of your retirement savings. This clarity allows you to assess your overall financial situation, set realistic retirement goals, and make informed decisions about your investment strategy.
Easier Monitoring: Monitoring and managing the performance of your investments become more efficient when they are consolidated. You can track the growth, returns, and progress of your retirement portfolio in a unified manner, which can help you make timely adjustments as needed.
Asset Allocation: With a single SIPP, you can more easily manage your asset allocation across different investment types (e.g., stocks, bonds, real estate). This helps ensure that your investments are aligned with your risk tolerance, time horizon, and financial goals.
Cost Efficiency: Multiple pension accounts often come with various fees and charges. Consolidating into a single SIPP could lead to potential cost savings by reducing overall account maintenance fees, transaction charges, and administrative costs.
Simplified Withdrawals: When you need to access your pension funds during retirement, having a single account simplifies the withdrawal process. You can more easily calculate how much you need to withdraw and manage the tax implications associated with those withdrawals.
Estate Planning: Consolidating your pensions into one account can make estate planning more straightforward. You can ensure that your beneficiaries are clearly defined, and the distribution of assets is better organised in line with your wishes.
Risk Management: Having multiple pension accounts might lead to unintended overexposure to certain investment sectors or assets. Consolidation allows you to better diversify your investments and manage risk more effectively.
Financial Adviser Coordination: If you work with a financial adviser, managing a single SIPP simplifies the process for both you and your adviser. It allows for more comprehensive and effective retirement planning discussions.

However, while there are numerous advantages to consolidating pensions into a single SIPP, it's important to carefully assess the terms, fees, and investment options of the chosen SIPP provider.

Additionally, some pension schemes might have valuable benefits or guarantees (defined benefit or final salary pensions) that you need to consider before consolidating.

It's advisable to consult with a regulated financial adviser who specialises in pensions and retirement planning to ensure that consolidation aligns with your individual financial goals and circumstances.

When discussing any solution with an international financial adviser, make sure there are no lock-ins, exit penalties or commissions being paid. These features are a sign that your pension is being over-charged and the advice you’re receiving is not independent.

The International SIPP for Expats | Our Verdict

For expats, the International Self-Invested Personal Pension can be a fantastic solution, and in our view usually remains the most appropriate pension account for expats around the world.

As a pension account designed to accommodate non-UK residents, the International SIPP allows seamless management of UK retirement funds on a global basis.

However, it's important to note some potential issues. The administration process can be more complex and time-consuming than traditional UK pensions. Additionally, fees can vary widely between providers and expat financial advisers, which could impact long-term returns.

When choosing a SIPP provider, ensure to consider the following factors:

Regulation: Ensure your provider is FCA regulated for increased security.
Investment Options: Look for a wide range of investment choices.
Fees: Be aware of all associated costs and make sure you understand how they can affect your long-term returns.

Remember that every expat’s circumstances are unique; selecting the right International SIPP provider requires careful evaluation tailored to your individual needs and goals.

At The Wealth Genesis, we charge the same flat-fee for all UK pension transfers and independent advice, whether it's one simple scheme or several complicated transfers.

We guarantee no commissions, hidden fees or conflicts of interest with any of our expat pension solutions.

To see how the Wealth Genesis and our team of expat financial advisers can help with your international retirement abroad, complete our online form to schedule an initial consultation.