5HoursBehind

Hi

Just joined the forum, and have been reading the helpful notes regarding UK pensions; In a nutshell it seems general guidance is:
1. Don't even think about transferring UK pensions to US - It can't be done
2. QROPS ... mostly for the brave, foolish or ever so slightly dodgy
3. Generally pensions are best left in the UK.

There's one question I've not seen raised, so would be interested if anyone has any experience in this area:

I have been in the US a couple of years, I have two UK pensions; one a SIPP with approx £30k in it; the other is a company Final Salary Scheme. I'm happy to keep these UK based - I'm planning retirement in about 10 years (probably remaining in the US - I'm a green Card holder and will probably seek US residency)

I declare my SIPP annually to the US authorities via 8938 and TDF90-22.1 (gotta love those catchy form names). I don't declare the Final Salary scheme (general consensus on the forum seems to agree that declaration is not required). My challenge is that I am a little concerned the company I worked for that provided my final Salary scheme may not be around to honor the pay outs when I come to collect.

The scheme does however offer a transfer out facility - they will transfer to recognized UK pension schemes - including SIPPs (this is fairly common with these schemes - they are quite keen to get pension liabilities off their books); I requested a transfer out valuation - and was pleasantly surprised the value came back as about £200k.

Some quick analysis suggests I may be better off financially by transferring this pension into my SIPP and managing it myself (I'm reasonably investment savvy); I'd certainly be happier not worrying about whether the company will survive for the next decade to pay out. My question is this: What will the US taxman think about this? On the one hand it seems it is perfectly legit - the US/UK treaty appears to allow within-country pension transfers. On the other hand my foreign asset declarations would rise dramatically with £200k of seemingly "new" assets - possibly triggering some additional scrutiny, potentially even a taxable event?

Has anyone explored this option? Are there any US-based UK tax specialists that forum members are aware of

Thanks in advance

JAJ

The final salary scheme should be in its own fund, separate from the employer. And there may be some additional government protection. Are you sure that there's a basis for concern?

There's a general consensus that final salary pensions are usually best left as-is, unless there is an especially strong reason to change.

Also general consensus that final salary pensions don't need to be declared on TDF-90 (FBAR) but may need to be declared on form 8938. However, there's no consensus whether there is any value that should be attributed to them on form 8938.

5HoursBehind

Thanks for the quick reply JAJ - I recall that whilst the UK pension protection fund seems to cover most of the pension liabilities if a company goes bankrupt, it's not everything. The company still manages the pension fund - and it is significantly underfunded at present.

On balance, whilst it will *probably* be fine, I'd rather be in the driving seat. I think I will also have more flexibility with a SIPP if I chose to retire early (maybe I'm just a control freak!)

MidAtlantic

I had a similar situation but found that my SIPP provider would not accept transfers in when I was permanently resident in the USA. They were happy to maintain my existing SIPP, but nothing more. You may wish to check that out with your provider because it may settle the matter.

nun

Final salary schemes are often a good replacement for fixed income in a portfolio allowing you to be more aggressive with your remaining money. What analysis have you done on the pension scheme...... you have the option to take 200kGBP now. How old are you now?, what is your gender? when would the pension start to pay out?, how much would it pay? does it have a cost of living increase and if so how much?

There is no problem doing a roll over from one treaty qualified UK pension plan to another as a US tax payer, there should be no tax implications. Some people argue about the treaty status of SIPPs, but IMHO that's a bit paranoid. The next argument is whether you have to actively claim treaty benefits, or indeed if that is the correct tax strategy. For may people claiming treaty exemptions on current gains is the simplest option and I would definitely recommend filing an 8833.

Hotscot

"I'm a green Card holder and will probably seek US residency."

You already have that don't you?

5HoursBehind

Thanks Nun

I'm 50 now, male, so 5 years out from being able to draw any income from the defined benefit scheme, and income provisions are greatly reduced if I start to draw early - need to wait to 65 to draw the full amount. Scheme does not have inflation protection. At 65 the guaranteed income is slightly north of £15k per annum

Some quick calcs suggest if I take the transfer value, put it in my SIPP and grow it at an average of 6% per annum (sounds acheivable?), it will reach £480k by the time I'm 65, equating to about £19k at a 4% draw down rate.

I went back to last year's 8833 and was relieved to see I did in fact register DB scheme, with zero value.

As Mid Atlantic mentioned, possibly I may have a problem getting the SIPP provider to accept the transfer; but I'm sorely tempted to try if there's no risk of adverse response from the US tax authorities

nun

That's a terrible pension. The difference between the pension and the SIPP is ridiculous when you consider that the pension amount also includes return of principal. If they will give you 200k at 50 instead of the pension I'd take it. I'm sure you'll find a SIPP provider willing to work with you if you search enough.