Glasgow Girl

It is a circuitous route for sure, but even with the fees it can be very financially advantageous over the long haul. Fees are typically about 2.5 to 3% of the pot to transfer to an International SIPP but they can be recouped many times over with the right strategy. The transfer to AJ Bell is free. The one time advice fee of about £2,500 may or may not be significant depending upon the size of the entire pot to be transferred.

Using alternate UK addresses won’t get past the UK financial advisors required to provide the necessary advice, it is not just the address that is the issue. Anyone using an alternate UK address to avoid US foreign account reporting is digging a huge hole for themselves because it provides evidence of intent to avoid detection and can result in significantly heavier penalties than those who would otherwise qualify for some of the remaining amnesty plans out there.

Pulaski

I believe that such "deferred funds" have to be disclosed at the time that SS is first drawn, as WEP is a one-time calculation, not something that can be updated as your foreign/ from non-SS-chargeable earnings pension(s) change, so I don't think what you're suggesting will work to avoid or reduce WEP.

Glasgow Girl

i was told (by SS) that any foreign pension needs to be disclosed but that the WEP calculation would be performed when payment of an overseas pension commenced not when SS commenced in which case deferring an overseas pension works. I am not there yet so I cannot confirm that but I know of others that have been told the same thing. But in any case it highlights the benefits of avoiding WEP by using a SIPP to effectively eliminate the pension.

Pulaski

OK, that's interesting, and is consistent with what I heard, I think, but still means that there is a one-time WEP calculation, so your plan only works if you can defer all WEPable pensions, and the first time you draw any single WEPable pension, the whole WEP calculation crystalizes.
By random dumb luck, not part of any plan, I will reach 30 years of SS contributions around age 65, and thereby escape WEP entirely.

That said, I am still thinking of using up my UK private pension funds entirely between retiring and commencing drawing SS and/or my UK state pension, thereby boosting one or both.

Glasgow Girl

The best plan of all of them!

durham_lad

That is how it happened with my wife. The WEP reduction in her SS didn’t happen until she started drawing her OAP. She doesn’t have any other pensions so I don’t know about how that would effect timing if the start of the first pension was below the max WEP amount.

In my case I will be at 28 years when I apply for SS in 2 years however I am already drawing OAP plus 2 other private pensions so the WEP will start immediately.

ReadingtoHouston

Update on my Defined Contribution pension transfer to the AJ SIPP

I opened the AJ Bell SIPP account and transferred my Standard life defined contribution pension to the AJ Bell SIPP account. These are the steps you must follow, and it is some work.

a) Open the AJ Bell SIPP account by giving the US address details. After completing the application @ AJ Bell website, it didn't automatically open an account for me. I was told someone from the new account department would contact me in 24 hours. I saved the online confirmation number. Nothing happened for three days, and I chatted with their representative by giving the online application confirmation number. Things started moving after the chat, and I got an email asking for identity and address proof. I was asked to notarize the documents and send them through email. I took my passport and water bill to the local UPS and got the notarized copies (It cost me less than $20). I sent an email with documents (PDFs), and then the account was opened.

b) I submitted the transfer request in the AJ Bell SIPP account by giving my Standard Life Pension details. No timelines were given. I was in contact with Standard Life and told them I wanted to transfer my defined contribution pension to SIPP. I was told I could do it, but they can't open SIPP (which they offer) for US residents. So I contacted them again and informed them that I opened an AJ Bell SIPP account and submitted the pension transfer through them. Standard life didn't mention the pension advisor in the transfer process. My pension amount was greater than 30000 GBP. Standard life sent an email with an address mismatch between my pension account and the transfer request (AJ Bell sent them US address details). I emailed the requested identity and address proof (I sent them the same documents which were sent to AJ Bell). I got confirmation that the transfer would happen in 7 days.

c) AJ Bell sent an email with a deposit confirmation. I can see the amount in the account and look for US shares quotes. AJ Bell has CDI to hold US shares. I assume this is pretty standard. They charge 0.073% for forex and trade dealing charges. Not all US shares are available and don't compare with Robinhood. I am looking at growth shares I can hold for at least 10 to 15 years. They didn't ask me to fill out W-8BEN; again, I assume they will ask me to fill out this form at some point.

It took 1.5 months from opening the account to the final transfer, and these timelines were during the holiday season. Thanks for all the help.

Is there anything I need to consider before I purchase the US shares in my SIPP account? I am 41 years and don't have plans to retire before 65.

Glasgow Girl

Many congratulations on getting this done, as you say it is not a simple task. This is great up to date feedback for anyone else wanting to transfer a Defined Contribution plan vs a Defined Benefit Plan that is greater than £30,000 in value. The latter legally requiring specialized and hard to obtain advice before the transfer can occur, the former does not require this advice and is therefore a much simpler process.

With regard to what to look out for going forward. You need to declare on an FBAR and on Form 8938 with your tax return if you meet the thresholds. Some will advise that you should report the account on Form 3520 as a Foreign Trust instead of an account on Form 8938, but that is a very complicated form to complete likely needing professional assistance at least for the first time, whereas Form 8938 is a simple and easy to complete form. The IRS has never prosecuted anyone for using Form 8938 vs Form 3520, but the requirements are ambiguous so maybe they could if they decide that is the appropriate form. But to this point in time they have not chosen to state unequivocally which way is correct, and many of us go with the Form 8938 route and lose no sleep in doing so.

Anything inside of the SIPP is not considered to be a PFIC until withdrawn from the SIPP so you avoid that nightmare.

neill

And form 3520 isn't required any more for UK pensions per Revenue Procedure 2020-17 from what i've read.

ReadingtoHouston

Thanks, Glasglow Girl and Neill, for the information.

I want to hedge my pension with the decrease in the GBP value over time (I am not predicting this, but my retirement expense will be in the $$) And also want to take advantage of US stock market growth. Therefore, I converted my pension to SIPP and planning to purchase US stock for growth and hedging. Any comments on this strategy?

Glasgow Girl

Interesting. I have the same situation but a different approach. I have an AJ Bell SIPP in £, and 401K/IRA/savings in $, with retirement expenses likely in $. I am keeping my SIPP in assets denominated in £ which still provides exposure to the US market and all worldwide markets, the same as I can do with my $ assets. My thinking is that I can withdraw from the SIPP when I feel that the exchange rate is favorable, and the 401K/IRA when it is not, effectively hedging against the exchange rate.

Of course buying international assets denominated in £ when the £ is weak and selling when the £ is strong would be a very bad move because you are effectively buying high and selling low since the fund price is impacted by the exchange rate so there is that risk. On the other hand overseas earnings when translated from other currencies are much stronger when the pound is weak so that also impacts the share price but this time favorably. I don’t think you want to be trading assets denominated in £ on a frequent basis, you want be in it for the long haul, or in a position to act fast when conditions are favorable. Bottom line is that all stock market investments carry some kind of risk, usually lots!

In any case when the £ is weak any funds purchased after exchanging £ into $ will also be more expensive than they would be with a stronger pound. So whether buying $ denominated assets with recently exchanged £, or buying international assets with the same £, it will probably result in the same overall cost, but at least the earnings in the £ denominated assets provide a boost to the share price when the £ is weak as it most certainly is right now. Over the long haul the exchange rate will vary so it is a crap shoot whatever you do. About 10 years ago we were at almost $2 to the £. (Don’t think it will ever get even close to that again in my lifetime, but who knows).

If the exchange rate rockets in favor of the £, I will exchange whatever cash I have on hand into $, but until then I like spreading the risk. I won’t get uber sized returns but as they say in the stock market, pigs get fat and hogs get slaughtered. I don’t think there a right or wrong, better or worse strategy, there are a ton of pros and cons for either. Be interesting to compare notes in 10 years!

ReadingtoHouston

Thanks. It will be interesting to see how it will unravel in the next ten years.

newadventure

Using a similar approach to my retirement as i have to raising our children (benign neglect), i appear to have ended up in a similar position re: pensions as our financial guru, Glasgow Girl. That's made my day!

vikingsail

An interesting and enlightening discussion. Thank you to all contributors. As I decide on options I would be interested to hear from anyone who has sucessfully navigated the conversion having to take the mandatory advice froma UK financial advisor as mentioned they seem to be hard to come by = advisors. And my 'pot' sits squarely just over the mandatory amount so finding a cost effective advisor is tough?

ukmark62

I have cashed in 3 small uk pension pots. Total of 24k (after tax) and all these pensions are now closed. I did this at age 60. The normal retirement date for these pensions was 65. One of the pension pots was a very small pension I started in about 1990 and contributed for a year and then stopped (FSAVC?). This consisted solely of voluntary contributions from my own income (not a work pension at all). The other 2 (21k in total) were work pensions where I worked a total of 28 months.

Am I correct in saying that these 3 small pensions would not need to be declared as and when I apply for US SS???
TIA