Leaving your pension scheme occurs when, for example you leave your employer, if you decide to opt out or stop making contributions. If you leave your pension scheme, the benefits you’ve built up still belong to you. As you move from job to job, you may find that you have one pension per stint of employment meaning you have multiple small pensions. You normally have the option to leave them where they are or to transfer them to another pension scheme.
If you leave your pension scheme, you do not lose the benefits you have built up. They continue to belong to you and you have several options for what to do with them. However, as an Expat your options can be limited. Some main pension providers will have issues in holding a pension for a US resident. Many will have issues in allowing you to swap your investment funds or to deal on your account and some will have issues in paying out your pension in a flexible manner!
Most schemes will allow you to transfer your pension pot to another pension scheme, for Expats this normally means a Qualified Recognized Overseas Pension Scheme (QROPS) or a Self Invested Personal Pension (SIPP) depending on where you are in the world.
You don't have to decide straight away – you can generally transfer at any time up to the point where you are expected to start drawing retirement benefits. In some cases, it's also possible to transfer to a new pension provider after you have started to draw retirement benefits.
Many UK pension providers have a very limited range of investment funds, normally they have a range of their own branded funds and tend to offer a few hundred options at a stretch.
It is our aim at Financial Freedom Capital Management to offer our client a holistic and comprehensive review of their existing UK pension plans.
We will conduct full analysis on the benefits to hand, versus the benefits available to you should you decide to amalgamate / transfer your pensions.
We have created a free guide which should cover the questions most people ask when considering what to do next.
The answer to this question mainly depends on what type of pension you have in the UK and whether or not the pension provider has an appetite for US resident policyholders. There are a multitude of different pension types however the vast majority fit into one of two categories the Defined contribution and the Defined Benefit.
These are your standard personal pension style policies, they normally allow for 25% PCLS (pension Commencement Lump Sum) also known as tax free cash and the balance can be used to provide an income whether via simple draw down or an annuity. Some Defined Contribution pensions can happily remain where they are as the pension provider will be malleable in dealing with US residents and some will offer a fairly flexible approach to income, however the vast majority are painful to deal with mainly as a US resident and a handful will pay out your PCLS but prefer you to move the balance to another product that will accept US residents.
Also attributed as the final salary pension, these pensions offer a guaranteed income based on your salary position throughout your time of employment with your company. DB pensions are notoriously expensive to operate many of them were set up in the 60s and 70s when life expectancy was much lower than it is today factor that in with very low interest and guilt rates for many years these schemes tend to be vastly in deficit. DB pensions have an inherit value normally calculated to around 30 times the annual income on offer. This “value” can be transferred out into some alternative options allowing you to gain access to the full amount compared to the guaranteed annual income that is on offer.
Now that we have summarized the two many types of pension lets focus on the options available. Initially the two main options available to US residents who have DC or DB pensions were the Qualified Recognized Overseas Pension Scheme (QROPS) and the Self Invested Personal Pension (SIPP). The tax rules surrounding QROPS were changed in March 2017 meaning that for anyone living outside of Europe (as a brief summary) would have a 25% tax levied on their pension at the time of transfer. For US residents this fundamentally made QROPS obsolete.
A simple form and a follow up call is all it takes to discuss your options and allow you to decide the future.
Recent changes to UK pensions, such as removing the need to purchase an annuity and the abolition of the 55% "pension death tax", have meant QROPS may have lost some of their appeal compared to a SIPP or other pensions. In truth, a QROPS and a SIPP are now more similar than ever.
As mentioned above, QROPS policies are fundamentally obsolete for US residents owing to the 25% tax applied upon transfer. The only realistic option is the SIPP. Finding a SIPP policy that allows the underlying beneficially owner (that's you) who lives in the US is difficult as there aren't many options.
Finally, all US residents MUST seek independent advice from a US qualified and regulated financial or investment advisor, regardless of the fact that the policy is in the UK. Any non US advisor giving advice to a US resident is deemed unregulated and if anything were to go wrong the SEC will not be able to assist you.
If you have been getting conflicting information on pension options then look no further. The following table outlines the key differences in the two transfer options:
A Qualifying Recognized Overseas Pension Scheme, or QROPS is an overseas pension scheme that meets certain requirements set by HMRC. A QROPS must have a beneficial owner and trustees, and it can receive transfers of UK Pension Benefits.
A self-invested personal pension (SIPP) is the name given to the type of UK government-approved personal pension scheme, which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue and Customs (HMRC).
For some clients, the size of their pension, the costs of moving, the requirement for guaranteed income may all be driving factors in not transferring to a SIPP or QROPS. Even if you are skeptical or on the fence have a no obligation chat with our experts to find out more.
Without bordering on giving you any advice at this stage we will summarize the benefits of a SIPP in the interests of being holistic.
UK Pension planning needs specialized advice. There are only a handful of firms in the US that can offer you advice given the need to have extensive UK financial planning knowledge. We are one of those firms and have helped hundreds of UK pension holders analyse their options.
Financial Freedom Capital Management
780 Fifth Avenue South, Suite 200, Naples, FL 34102, USA
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Tel: +1 239-237-0251
Financial Freedom Capital Management LLC is a Registered Investment Advisory firm.
Financial Freedom Capital Management LLC RIA IARD # (Investment Advisor Registration Depository) is 174385.Altin Meleqi is a registered investment adviser in the State of Arizona, California, Texas, Florida, New York and Tennessee. The Adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.
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