Anne Elliot

I'm requesting help with DH's pension from work in the UK between 1984 and 1991. This is not a 'final-salary' type pension, but the kind where you build up a pension pot and then buy an annuity at pensionable age. I imagine there must be thousands of BritishExpats in this boat and someone must have been through this scenario before.

The pension provider has changed over the years but it is now with Aviva. It is a corporate scheme where the only alternative is to take the annuity (rates are pitifully low) and as the rules changed a few years ago he would like to move this pension pot to another scheme and use the 'draw-down' method to take money out.

DH seems to hit stumbling block after stumbling block - now they will not let him move this money without talking to a 'financial advisor'. The pension is in some kind of mutual fund type arrangement, with huge ongoing fees (1.1% annual expense ratio), so this money has not grown as much as one might expect. But, we really would like to get our hands on some of it! He was so furious last time he spoke to someone they have marked his account as not needing any action until he reaches 75, he's 65.

How much do these financial advisers cost? What is the insurance company's cut in transferring to a draw-down scheme? Unfortunately, DH gets so exasperated when dealing with these people he loses patience when talking to them, they don't make it easy, and he doesn't push forward to at least finding out the detail of how this can be done. He thinks they are all thieves!!

Can any US expat residents recount their own experience in dealing with UK pension providers? Any tips? I would be so grateful.

Glasgow Girl

I just completed a final salary transfer to a SIPP that allows drawdown. My original pension provider required that I had documented financial advice before they would release the funds. So not exactly the same, but a similar situation to you. Only a UK registered IFA can get you that documented advice and there are very few that do so anymore because of new more stringent regulations surrounding this. Those that do provide the service, and UK IFAs in general, want nothing to do with anyone who lives in the USA due the fear of being sued in the US courts. So that leaves you with very few options.

There are firms that advertise this service to expats on the internet. I did a lot of research on them and never felt good about any of them. Through some other contacts though, I did find a small company that has a US and a UK regulated advisor. They have a relationship with a UK regulated firm that provides the required advice, and the UK/USA firm will manage the actual transfer if you decide to go ahead. The funds go from your original UK regulated scheme to the receiving scheme which also must be UK regulated. The IFA never gets the funds personally so that is an excellent safeguard.

It is not cheap. The advice alone will cost you 2,000 GBP (more if you have a very large pot). That is a lot of more more than it used to be. The increase is due to the recent legislation changes making it even more difficult to perform this service. (Most of the cost is for insurance that firms require to protect themselves against UK based mis selling law suits). In addition, the financial advisor will then require about 3% of the total pot to facilitate the transfer. You cannot do one without the other so total costs are a minimum of 2,000 GBP plus 3%. There is a choice of SIPPs that you can transfer to but all require that your funds are managed by an IFA who will take another 1% ongoing charge from you, and some smallish fixed fees (about 200 GBP a year for platform maintenance). You have online access to view your finds but can only buy and sell through the IFA. To that extent you husband is correct in that it does seem like they all a bunch of thieves! With that said the many advantages of being able to control when I access the funds versus taking an annuity far outweigh the cost involved (at least for me).

Mine took about 16 weeks to complete and it was a worrying time as you hear dreadful things about scams, etc. It took me about about 1 week working with the IFA to provide all the information required to get the advice, about 3 weeks for the firm to process the data and provide the financial advice (you can speed that part up up by paying more) and the remainder of the time was taken up by the original pension provider.

Be aware that having a SIPP opens up another whole can of worms on tax reporting. Some say you have to treat it as a foreign trust, others say just declare on your FBAR and tax return. You will have to do some research and make your own decision on that one. I hesitated to go ahead given the initial transfer fees, the ongoing fees and the perceived risk but now it is done I am so glad to have access and control of the funds.

I do want to point out that I am not an advisor of any kind and the above is simply information I learned in researching the same scenario for myself. I know how hard it is to get this this done and how frustrating it is. I have gleaned a lot of useful information from this and other forums and so I am happy to pay back when I can. If you want more information PM me and there is only so much that I am willing to share publicly.

Anne Elliot

Thank you so much for your reply, Glasgow Girl. I very much appreciate your taking the time to type all that out. If DH was able to transfer the pot out we were hoping to move it one of the low-cost platforms, but it appears from your story as if that may not be possible. Of course, I realize that your reply can't be taken as financial advice and that's not what I'm looking for here. Just some personal experience.

I am wondering why your SIPP would make the pension pot any different from now for reporting purposes. I have been reporting it each year on his FBAR so the US treasury does know about this money. I did that as he could choose which of their investment funds it was invested in, plus they send him a statement every year showing the value. Maybe this is a different situation from yours because your pension has gone from a final-salary type to a pension-pot type?

I am trying to keep personal details out of this as I am sure that there are many others in our situation who might benefit from our discussion.

Thank you for the offer to PM you, I might take you up on that.

Glasgow Girl

The only vehicle that you can transfer to is a SIPP, and all SIPPs are in fact trusts. However it is not black and white as to whether or not a SIPP requires foreign trust reporting. Even the IRS has never provided an answer to that very question despite being asked numerous times over the years by many people. People who are ultra conservative insist that you must report it as such, while many others just continue to report on the FBAR and tax form. To the best of my knowledge, to date, no one has ever been prosecuted for failing to report a SIPP as a foreign trust.

For what it is worth I too wanted to transfer to a low cost provider, AJ Bell in my case. I was able to open up an account with them but you must interface with them directly, they will not deal with IFAs. Unfortunately if you need advice before the funds are released then you are stuck in a Catch-22 situation because UK regulations now require that the advice names the specific SIPP that you are going to transfer to, you can only get that advice using an IFA and the IFAs will only work with SIPPs that interface with them which rules out A J Bell which is one of the few left that will allow non UK residents to open an account. Every time you think you have a solution to this dilemma you hit a brick wall!

MMcD

WOW!
What a clear, thoughtful and I would think - unusually helpful post, given the complexity of the OP's decision
I have zero personal interest in this particular issue - but was so captivated by what you wrote, your reasoned explanation and how you were expressing it....that I just kept reading.
You did the same for someone else on another financial issue earlier today (or was it yesterday ? Covid isolation has wreaked havoc with my inner clock - I thought today was tomorrow, this morning)

Anyway...thanks for your valuable contributions

Anne Elliot

I agree with MMcD's endorsement.

It appears you were certainly in a Catch 22 situation there. One thought... what is to stop you transferring out of the new plan? Do they also insist on an IFA being involved? A perpetual cycle. Crooks, the lot of them! Incidentally, AJ Bell was the provider we were hoping to use.

The annoying thing for us is that DH put lots of AVCs (Additional Voluntary Contributions) into this pension, thinking at the time that it was the right thing to do. There is more money in there than there need have been.

I wonder, if DH does nothing do the funds pass into his estate on his death, or are they just 'lost'? He's furious about this situation and is threatening to just forget about it and not draw the pension.

durham_lad

I am pretty sure that beneficiaries can, and really should, be named on a SIPP. When the SIPP owner dies the SIPP can then be distributed to the beneficiaries as a lump sum..
https://www.onlinemoneyadvisor.co.uk...ps/sipp-death/

if the DH really does not want the hassle of dealing with the SIPP anymore then setting beneficiaries and forgetting about it may be a good option. We are in the opposite situation of living in the UK and having the US equivalents which we will never empty (IRAs). We have our 2 children listed as equal beneficiaries. The account details are kept with our wills.

Glasgow Girl

You can transfer from one SIPP to another, you just have to go through the IFA to make the transfer happen. Awkward but doable..

You would have to ask you plan administrator for details on what happens if you do nothing. All plans have their own rules, only they can answer those questions.

Provided you have access or can get access to all of his financial information you can do most of the legwork for you husband. In reality all he will have to is to sign the forms.

kodokan

I too thought Glasgow Girl’s response was succinctly excellent - BE Forum won’t let me rep them again/ this much, apparently, but public hat tip to how helpful the post was!