International SIPPs are Self Invested Pension Plans specifically created for non-UK residents. They offer clients a wide choice of investment opportunities and are the preferred option for anyone outside the EEA who wishes to transfer/consolidate their UK pensions.
The sections outlined below examine the origin of International SIPPs and the processes involved in transferring UK pensions overseas. Topics include the following:
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The UK government introduced personal pensions in the mid-1980s to encourage individuals to save for retirement. Insurance companies offered most personal pension plans. Although such schemes are well structured, plan-holders are often restricted to a small range of funds operated by insurance company investment managers. The modern-day SIPP, or International SIPP, offers a more flexible type of personal pension whereby plan-holders can invest in a much wider range of investments.
International SIPPs are an extension of UK Self-Invested Personal Pensions. There are few differences between UK and International SIPPs; they are both pension plans regulated by the Financial Conduct Authority in the UK. The International SIPP was originally designed for non-UK residents who wish to keep their pension assets in the UK rather than transfer to an overseas pension solution.
International Self-Invested Personal Pensions (iSIPPs) are regulated by the Financial Conduct Authority in the UK. They can be set up by UK citizens who are resident overseas to manage UK pension benefits. An international SIPP can provide a regular or variable income, and there is no obligation to purchase an annuity. They provide greater choice and flexibility regarding investments, tax benefits and currency choice. Where you have your main home will determine the tax treatment of contributions into the pension scheme.
International SIPPs were created to fill the gap in the market for UK pension transfers that Qualifying Recognised Overseas Pension Schemes (QROPS) could not cater for. Providers modified their systems to enable clients to denominate their investments in currencies other than Sterling. A key requirement was that International SIPPs needed to be relevant to the currency the individual is earning or will eventually be spending in retirement.
International advisers are invariably better placed to help with local tax issues that must be considered. In some cases, such as the implications of Dual Tax Treaties and general tax rates, this advice will be offered as part of a financial planning package. In more complex cases, an international adviser can direct expats to suitably qualified local and/or international tax advisers.
International SIPP providers are usually more conversant with expat financial planning and taxation issues. They, therefore, tend to provide products and services that reflect that difference.
The International SIPP is a suitable pension vehicle for those retiring abroad. With a much wider range of product offerings, this form of SIPP offers more control over where your pension money is invested. Key features include:
International SIPPs offer a wider range of investment funds which are more globally focused. This is in contrast to domestic SIPPs, where fund choices are more limited to the UK and are also denominated in Sterling.
SIPPs are an ideal way of consolidating the various personal pensions that individuals accumulate during their working life. Such consolidation reduces administrative complications further down the line. This is true for both UK and International SIPPs, although arguably more important to expats.
International SIPPs are based in the UK and qualify for tax relief in the same way as UK SIPPs. This means that if someone transfers into an international SIPP whilst abroad and then returns to the UK for either a short time or permanently, normal pension contributions can be made individually and/or by a new employer.
The range of investments accessible to an International SIPP is as follows:
Care must be taken when constructing a portfolio. Risk exposure can change as conditions alter. Therefore, regular reviews and monitoring are essential to ensure your investments accurately reflect your situation and financial objectives.
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International SIPPs are regulated in the United Kingdom. This means they are not subject to supervision from the EU or further afield. You should note the following:
- The SIPP provider is authorised and supervised by the UK Financial Conduct Authority (FCA).
- While useful for expats, the SIPP may not receive the same level of tax concessions in all countries outside theUK.
- UK pension legislation is subject to change, which could affect access to benefits or tax treatment.
SIPP benefits are paid to members in Sterling. This means that you are exposed to exchange rate fluctuation if you invest in a different currency. We have witnessed such risk exposure at various times in recent years when the pound has changed in value. Currency risk can affect both the value of your pension fund and the income you draw.
Funds held in an International SIPP don't include guarantees not to fall in value; they are subject to the overall market performance. Past performance may not be indicative of future results; different investments involve varying degrees ofrisk.
International SIPPs and QROPS have similar characteristics allowing the individual a more flexible approach to managing their existing UK pensions. Regarding suitability, a QROPS is generally more appropriate for those with larger pension pots. A QROPS can also help protect against future tax liabilities for those nearing the UK Lifetime Allowance (currently £1,055,000). There is also the consideration of how the pension transfer would be taxed if you live outside Europe.
An Overseas Transfer Charge(OTC) in the form of a 25% tax on the transfer of UK pensions to a QROPS was introduced by the government in 2017. In general, residents of Europe/European Economic Area (EEA) countries are exempt from this charge on pension transfers.Exceptions to the tax are granted under the following circumstances:
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You should conduct thorough research before transferring your pension into an iSIPP. Not all SIPP schemes accept pension transfers; you must seek qualified pension transfer advice.
If you have a defined benefit pension pot that is valued at more than £30,000, the government stipulates that you are obliged to take advice from a regulated pensions adviser.
You will need to ask your current pension scheme provider for a cash equivalent transfer value or CETV. You should also find out what benefits you will lose if you transfer from your current pension scheme. These facts can help you establish whether a pension transfer into a SIPP suits your circumstances.
The process for carrying out a transfer can be complex and lengthy and may take several months to complete. If your pension is eligible for a transfer, your pension adviser will be able to manage the transaction and ensure you are fully aware of the ramifications of the transfer. They will also handle all the paperwork.
As ever with financial planning, it is important to understand the implications of each element of your plan and make sure that everything works in context. Again, your financial adviser should be sufficiently experienced and qualified to help.
is a team of international pension experts who assist clients in making the best financial decisions for their retirement.
All of our Pension Guides are designed to help you make the right decisions for your retirement. We are available for a free consultation if you need further advice.
Download Now