More than 700,000 British expats currently reside in the USA, many of whom will own UK Personal Pensions plans. SIPPs for US residents have therefore become an appealing option.
These plans may have been long-forgotten; documents might have been sitting at the bottom of a cardboard box gathering dust. There are a variety of Personal Pensions, ranging from the very old to modern versions.
Pension plans have changed dramatically over the years. Policies which predate the 2015 changes, which allowed a more flexible approach to taking benefits, could restrict the holder to an ‘annuity only’ option. Others may only allow ‘capped drawdown’.
Although annuities have recently experienced a renaissance due to higher interest rates, they are still inflexible and involve permanently giving away the fund to an insurance company in return for a guaranteed income for a predetermined period. This is often for the lifetime of the recipient, and benefits can be indexed.
Capped drawdown contracts operate in a similar way to annuities in that income is limited to Government Actuarial Department rates. Essentially a rate per thousand, calculated according to the age of the pension holder is applied and a maximum of 150% of this figure can be taken as an income.
There is no requirement to give the money away forever and a Tax Free Lump Sum can be withdrawn up to (usually) 25% of the fund at retirement. Taking a Tax Free Lump Sum from an annuity policy is also possible.
Since 2015, the regulations have changed, and pension plans can offer a Flexible Access Drawdown facility. These plans enabled the holder to withdraw as much or as little as required on a year-to-year basis. So, no mandated annuity and no capped drawdown restrictions.
For US-based pension plan policyholders, knowing how any Tax Free Cash withdrawals will be treated is important. The Dual Tax Treaty states that the UK and USA will respect each other’s pension rules; as such, Tax Free Cash should not be taxable in the USA. Some States may override this; it’s best to check with an accountant before taking it.
Irrespective of which type of pension someone might own, it’s always important to fully understand the structure and review the plan on a regular basis. It is possible to transfer a UK pension into a Non-resident SIPP, which usually offer a better product specification than existing plans. NR SIPP providers are experienced in dealing with non-UK resident customers and can make payouts in arange of currencies, including US$. Additionally, a much wider range of investment funds can be accessed in multiple currencies. Several US regulations must be followed; it’s also important to be advised by a company conversant in UK and US legislation.
Non-resident SIPPs are only available to persons who aren’t UK resident. However, these plans are still UK-based and regulated by the Financial Conduct Authority.
The solution: SIPPs for US residents
Here’s our step-by-step guide on what to do if you have a UK pension and are a US resident.
· First, make sure you know the structure of your pension and which company currently administers it. Mergers and acquisitions activity has resulted in regular changes to administrators of pension products; a different company might now manage yours than the one you invested with. Are you restricted by an ‘annuity only’ or capped drawdown plan?
· When you know the type of pension you hold, check if the investment funds you invest in are appropriate for your current situation. What may have been a good idea when inputting funds may not now work in the best way for you. The fund currency, for example, may not be suitable if you are now in a US$ environment.
· What options do you have regarding investment fund availability? Many older plans only offer a restricted list of in-house funds. Even modern plans can have a shortage of funds for investment.
· Next,check the fee structure and assess value for money. What are the real costs of your investment funds? What is the annual fee? What about incidental charges for fund switches, benefit payment events and other fee-based services?
· Ifyou have an adviser, do you know the costs? Most charge an annual percentagefee. Whilst this is fine, are you sure you’re not paying too much?
· Even if you are completely happy with your arrangements, there’s no harm in finding out if better options exist. You can likely improve your situation. You should contact a suitably experienced and regulated advice company to assess your pension plan and see if they can make any improvements.
So, whetheryour UK pensions are literally or metaphorically gathering dust, there’s never a bad time to review your policies and ensure they are still appropriate for your current circumstances.
Please get intouch with us below if you would like some advice on SIPPs for US Residents.
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