People who now live in the USA and built up private or company pensions whilst working in the UK often face several challenges when accessing information, obtaining advice and transferring their plan to something more appropriate to their residency status.
So, what UK pension options are available to ‘US-connected’ citizens, and can better outcomes be achieved than simply leaving things as they are? US-connected citizens are defined as either persons born in the USA or those who live there and are tax residents.
Available UK pension options
First, let’s look at the ‘leave things as they are’ option. You may have a pension with XYZ insurance company and, although you have some online access, day-to-day management can be difficult due to time zone considerations and the dreaded musical queues (or should that be lines?) we all seem to be so dependent on these days if we ever need to talk to any large institution. If we’re very lucky, we will get to speak to a human being at some point, but there’s no guarantee the person will be able to help, particularly if advice is needed which is specific to USA residence.
UK insurance companies aren’t allowed to give non-UK residents advice, other than (perhaps) a rough idea of the value of the pension plan. Similarly, most UK independent advisers can also not help unless they hold an SEC licence.
UK pension plans are, unsurprisingly, designed primarily for UK residents. Most only offer UK investment funds, and benefits can only be paid into UK bank accounts. Few offer the ability to invest in stocks and shares, and those that do, wouldn’t accept a transfer from a UK insurance company pension plan from a US-connected person.
When the time comes to withdraw income from a UK pension, providers are obliged by HMRC to pay any tax due direct to them. There are ways to minimise or even eliminate UK income tax; careful management can help achieve this. For example, non-UK tax residents should apply for an NT code from HMRC. Only taking an income equivalent to the UK personal allowance can also help.
Whilst traditional UK pension plans might have met the individual’s needs when resident in the UK, this isn’t always the case when someone emigrates to the USA.
Thankfully, there is a solution. Although the vast majority of UK pension providers won’t deal with non-UK residents, a select few do.
One of the UK pension options is to transfer to a plan that has been specifically designed for US-connected persons. These companies fully understand the problems associated with holding other plans and offer products which solve all of these issues.
Transferring your UK pension to a US SIPP
Here are some benefits of transferring to a US SIPP (Self Invested Personal Pension):
- If you have UK earnings and want to make contributions, this is possible.
- There are a wide range of investment options available, including Exchange Traded Funds, stocks and shares and Mutual Funds.
- Flexible Access Drawdown (FAD). Some older pension plans may be restricted in how benefits can be taken. FAD means you can withdraw the exact amount you require and change the level of income from one year to the next. Care must be taken to ensure your pension fund doesn’t drain too quickly.
- Possibility to withdraw up to 25% tax-free. Although the Dual Tax Treaty states that the UK and USA will respect each other’s pension rules, it’s important to check with your local tax adviser.
- You can transfer your existing pensions into one easy-to-use scheme.
- Online access and complete investment flexibility.
- Transparent fees and charges.
Most importantly, you can appoint an adviser to your pension plan. In fact, you can only transfer existing pensions into a US SIPP via an appropriately regulated adviser. The adviser must be SEC licenced and have the necessary knowledge and experience to advise on and conduct the transaction.
An adviser can help with your entire financial plan and ensure everything works in context with your current and future situation. One of the most important elements will be ensuring your US and UK investments and pensions maximise tax efficiency and optimise investment opportunities. This is particularly important when deciding how much income is required in retirement.
Transferring existing pensions into a US SIPP will avoid all the problems experienced by trying to stick with existing schemes. The first step is to talk to an adviser who is qualified to help.
If you would like more information on UK pension options for US citizens, please complete the form below: