ReadingtoHouston

Dear Expats,

I want to know the options for my UK Pension Transfer.

I am 41 years and recently got my GC. I plan to settle in the US and wind down all the financial assets in the UK. I have a UK company pension (Defined contribution) and stopped paying into it when I moved to the US. I want to invest my pension pot in US shares (I have some growth companies in my mind). The online research says - I can't move my pension to SIPP because I am a US resident. But there is something called international SIPP for which I need more information. I need to find out the pros and cons of international SIPP and whether I can transfer my pension.

Does anyone have information or experience with Internation SIPP? Please also help me with pension specialist recommendations whom you have used before.

vespucci

I do not know what the rules are now, but a few years ago I wanted to transfer my UK pension to the US, but was unable to do so. But I was able to transfer it to a UK SIPP which had a lower fee (expense ratio) than my pension, which had a high fee.

Glasgow Girl

Unless things have changed very recently you can technically transfer an existing UK pension into a UK SIPP. There are two major obstacles though. First almost none of the UK SIPP providers will accept US persons as a client, the one exception being A J Bell. I would contact them or go through the motions of opening an account, it’s fairly easy and you will quickly find out if they still allow it. https://www.ajbell.co.uk/apply/sipp.

If A J Bell are still accepting US clients then the second obstacle (and this applies even if transferring to an International SIPP) is that if your existing company pension is valued at more than £30,000 then you are legally required to take financial advice from a certified UK advisor before your existing provider will release your funds, and as above there are almost no UK advisors that will accept US residents as a client. There are several international companies that will provide this required advice but will require that you transfer into an International SIPP.

The kicker is that you can only get the advice going through an international broker, A J Bell will not work with brokers, and unfortunately the advice is tied to the broker so you cannot get the advice and then go to A J Bell independently. However, there is a work around to transfer to an International SIPP and then transfer from there independently into A J Bell. This is what I did. It is time consuming and there are fees involved. From memory 3% of the fund value to transfer to the international SIPP, and about £2,500 for the advice, although you can negotiate the transfer fees depending upon the size of your pot. You also want to answer the questions on the advice questionnaire such that a transfer is recommended because some of the international brokers won’t accept you if the advice is not to transfer, and indeed if that is the case then you should certainly rethink the situation.

The issue with International SIPPs is that although you can invest in good funds worldwide including the US, you have limited investment choices and these do not normally include the funds available in the regular US market place so I would check out what options are available if you intend to do the International SIPP route and stay there. Most International SIPP providers also require that your funds are managed by a broker adding an unnecessary management layer and of course additional fees. A J Bell also have a limited range of funds available to non UK residents but there are a lot more than are available to International SIPPs and include some well known UK funds, as well as many worldwide, including the US, but again check out what is available before you start the process because you cannot invest in all of the funds available in the regular market place.

It is a long process. It took me about 9 months to a year but that was at the height of Covid so could be faster now, but UK pension providers are not known for their speedy service. Despite the fees and the hassle I am glad I did so. But it is work, somewhat stressful, and you have to keep on top of it. I can let you know who I used to facilitate the transfer. If you are interested PM me but first look into whether or not A J Bell will accept you and if the fund choices meet your needs as I will need to some legwork to find the contact details.

Pulaski

There is no way to transfer a UK pension account, of any sort/type, into the US. Aside from Robin1234's advice, above, on creating a SIPP, there is nothing that can be done with a UK pension account if you are a US resident, and indeed many pension managers won't touch you (or aren't able to) for regulatory reasons if they discover you are not resident in the UK, or worse, are tax-resident in the US. So unless you are still resident in the UK, your hands are already significantly tied.

I myself have half a dozen pension accounts in the UK, and the only thing I could do with them in consolidate the smaller ones into one of the larger accounts, but haven't got around to doing so yet; maybe one day. ... I left the UK 21 years ago!

retman

You state that your company pension is "Defined Contribution". It may be possible to transfer to a UK SIPP such as AJ Bell which is the only provider I am aware of that will accept transfer from "US Persons", without having to take financial advice if the balance is over GBP 30,000. If it is a "Defined Benefit" pension then most definitely advice is required. AJ Bell offers both US funds and individual stocks, if that is what you want, but bear in mind transactions are subject to foreign currency exchange risks and balances are held in UK pounds not US dollars,

kaj808

There are some UK SIPP options available for US residents. There are also options to invest into US listed assets and not be subject to the 30% withholding tax on US dividends and interest.

ReadingtoHouston

Thanks, Glasgow girl. I completed the AJBell SIPP application, but it didn't allow me to create an account. So, I will contact my Pension (Standard Life), My Company Pension Trustees, and AJBell. I will post an update.

ReadingtoHouston

Thanks Vespucci, Pulaski, Retman, Kaj808 for the information. This is really useful.

Glasgow Girl

I will interested to see if A J Bell will still open accounts for US residents.

porkedpie

Why move it to a SIPP anyway?
When checking my old employer plan details, the fees were comparable to the best SIPPs, and had plenty of decent fund choices. Might be much easier to just leave it where it is?

Glasgow Girl

There are two main reasons to convert company and private pensions to a SIPP.

The first is WEP which will reduce US Social Security by 50 cents per dollar on the first $1,024 of combined monthly foreign pension income based on paid earnings from a non US Country, these amounts increase every year. This includes all UK company pensions (finally salary or defined contribution), private pensions (or pension pots) benefitting from NI rebates from contracting out of a company pension, and the portion of the UK state pension not based on voluntary contributions. The only foreign pensions that escape WEP are the portion of your UK state pension based on Voluntary NI contributions, or any pension funded by Free Standing Additional Contributions which you could do back in the 80s and 90s.

The second is if you want to take your company or private pension in drawdown rather than accepting a monthly payment or an annuity. This can be very beneficial for tax management purpose enabling you to take funds in a lumpy way as you need them or to manage tax, capital gains and Medicare brackets on an annual basis, or to avoid WEP, and can also preserve the funds for your heirs if you do not expect to use all them all in your lifetime. Most UK company providers will only provide a monthly pension and do not provide drawdown features instead requiring you to transfer to other private UK providers that facilitate drawdown. However, most of these providers will not accept US residents for drawdown purposes even if you are an existing customer, although they may initially accept your funds for investment. Therefore this option is closed for US expats, the sole exception being SIPPs which allow you to withdraw funds whenever you want to.

if you have no US social security then WEP does not apply, AND if you do not need or want to manage your annual income to avoid triggering higher income tax brackets, Medicare and Capital Gains Taxes by managing your annual income via drawdown then a SIPP unnecessary . On the other hand there are significant WEP savings, income tax, Capital Gains and Medicare Tax savings to be made if you manage your overseas income in your retirement years via drawdown and a SIPP is an excellent tool to do so. Drawdown can be managed to spread income over years to maximize income up to the various threshold limits, Medicare is a good example, exceed the threshold for a higher bracket by just $1 and you can be paying thousands of dollars more annually. That is a very expensive $1 of income, there are many examples of where you can reduce your taxable income by judiciously managing income to reach but not exceed the various thresholds.

porkedpie

Drawdown is a good point. My company plan supports this, but if yours doesn't then it makes sense to have that flexiblity.
I don't understand on WEP though. WEP applies to income from SIPPs as well as employer pensions. So why is that a reason to move it to a SIPP?

Pulaski

If you have a pension that supports drawn-down then you can draw and exhaust potentially WEP-able pension accounts before first drawing SS, thereby reducing or eliminating the WEP issue.

porkedpie

Thanks for the explanation.
So then it would seem the reasons are/might be:
1. If SIPP fees are lower than your employer plan fees.
2. If your employer plan doesn't offer investments you want.
3. If your employer plan doesn't offer drawdown.
3a. Opportunity to avoid WEP
3a. Opportunity to manage income (e.g. for medicare costs) & tax.

And seems the only option as of now would be a circuitous and costly route to AJ Bell.
As an aside, I know expats in many countries who still use a UK address (e.g. family) for various purposes. The uses may or may not be practical or legal.

Glasgow Girl

Normally, when you withdraw a lump sum from any kind of foreign retirement pot, SS will commute that amount into what they consider to be the equivalent monthly amount, and that amount would be included in the monthly WEP calculation.

However, If you convert your pension into a lump sum prior to reaching pension age, and forfeit all rights to a pension then my understanding is that SS does not consider those funds to be subject to WEP. The key is that you must convert prior to being eligible for the pension, and one would assume prior to taking US Social Security at an earlier age than your foreign pension allows.

Notwithstanding the above, as Pulaski states, you can withdraw the funds prior to taking SS thus avoiding WEP altogether or at least minimizing it; or defer taking the funds until much later in life thus avoiding WEP for longer ensuring that more of the cumulative payment exceeds the monthly maximum. Or, just leave them for your heirs if you don’t need the funds. Withdrawing early, or deferring for as long as possible, or anything in between is situational dependent but the right strategy can pay huge dividends.