US Citizen With UK Pension | How Does It Work?
LEARNING OBJECTIVES
We’re passionate about providing high quality, relevant and up-to-date financial information to US citizens.
IN THIS ARTICLE, YOU WILL LEARN THE FOLLOWING:
How a UK pension scheme works
Your options for transferring to the US
The best UK pension account for US residents
Best practise when taking SEC regulated advice
This article is intended for US citizens with UK pension accounts.
The UK is one of the top destinations for Americans moving abroad. As such, the number of US citizens with a UK pension returning home has significantly increased in recent years. If you're a US expat with a UK pension, this guide should help you understand your position and the options available.
Understanding Your UK Pension Scheme
A UK pension scheme is a financial arrangement designed to help individuals save and invest money for their retirement. Contributions receive tax relief from HMRC and can be matched by your employer. All growth on investments is tax-free until withdrawn.
The main schemes used include;
Occupational Pension Schemes:
These are employer-sponsored pension schemes set up by companies for their employees. There are two main types:
Defined Benefit (DB) Schemes: Guarantee a specific income in retirement based on factors such as salary and years of service. In essence, a company annuity.
Defined Contribution (DC) Schemes: Accumulate a pension pot based on contributions from both the employer and the employee. The final pension value reflects the performance of the investments held within your scheme.
Stakeholder Pensions
Stakeholder pensions are a type of personal pension that must meet government-set standards. They are designed to be simple and low-cost, with flexible contribution levels and a cap on charges.
Self-Invested Personal Pensions (SIPPs) | UK SIPP :
SIPPs are a type of personal pension that allows individuals to have greater control over their investments. Investors can choose a wide range of assets, including stocks, bonds, and commercial property. Individuals who are not part of an employer's pension scheme or are self-employed can opt for a SIPP.
Transfer UK Pension To USA
Upon relocating back to the States, a common request is to transfer your UK pension back to a US retirement plan. Specifically, members want to transfer their UK pension to a US 401k or an IRA.
Unfortunately, this is not an option. You can only transfer your pension to another HMRC recognised scheme.
Neither a 401k nor an IRA meets the criteria, so you are left with 2 options:
1) Remain in the Existing UK Pension Scheme
You might not have to switch pension providers if your goals align with your current UK provider's services.
Key questions to consider include;
Can I take pension income as and when I please?
Is tax held back or is my money paid out gross?
Can I choose my investments?
Can I invest and withdraw in USD?
What are my investment choices?
Can I work with a regulated wealth manager?
Upon answering these questions and more, you will know if your current arrangement works for you.
If not, you will need to transfer your pension to another scheme.
2) Transfer to an International SIPP
An International SIPP is a UK pension for non-UK residents. Now that you live in the USA, you will want a pension that caters to your needs. An International SIPP will allow the following;
Initial and Ongoing advice: Work with UK and US qualified cross border pensions specialist. Your adviser can align both the product and portfolio with your aims and objectives.
Greater control and investment choice: You can choose from a variety of funds. These include low-cost index tracking funds, mutual funds, listed shares, US treasuries and money market funds.
Mitigate currency risk: Invest and withdraw in USD.
Flexibility: You can choose when and how to take out money to avoid paying more taxes than needed.
Negate Double Tax Charges: Via an NT code, withdraw your pension free of UK tax and pay in line with your US tax rate.
Consolidation: You can combine two or more pensions into one International SIPP. This allows your investments to be managed with one overall investment strategy whilst reducing unnecessary costs.
Best International SIPP Providers
With many International SIPP providers available. As well as your requirements and priorities, key considerations include cost, servicing, reputation, accessibility, and investment choice.
You can find an article comparing the current best international SIPP providers available here.
Financial Advice For Expats
Receiving expat financial advice enables you to have a retirement plan implemented to meet your short, medium, and long-term goals.
Upon changing your country of residence it is easy to be misinformed or leave things where they are until you need them. This often results in the wrong asset allocation and risk level for your financial plan.
At The Wealth Genesis, we start with you and your needs. Via our discovery meeting, we assess your overall financial health and objectives. From there, we help implement an investment strategy to meet your goals.
Initially, this will be selecting the most suitable product and fund allocation. As time goes by this can include assisting with tax efficiency, Inheritance Tax planning, and any required withdrawals.
To understand how our SEC regulated expert advisers can help secure your retirement in the USA, get started using the button below.
FAQs
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We charge a fixed fee, so whether you are consolidating multiple pensions or transferring one, the fees are as follows:
A one-off £3000 initial advice fee.
0.85% per annum, based on the value of the invested assets.
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The US tax on UK pensions is subject to the UK US Tax Treaty. Whilst we always recommend taking expert tax advice specific to your situation, the basics are as follows;
Thanks to the US UK income tax treaty, you can withdraw from your UK pension free of UK income tax. This is done via an NT code with a more detailed explanation found on the link above. Note that any withdrawal will need to be declared on your tax return.
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No, for the same reason you cannot transfer a UK pension to a US retirement plan - they are not recognised by HMRC.
