If you were in employment in the UK and part of your employer’s pension plan you may have a defined contribution pension (otherwise known as “money purchase”), a defined benefit pension (otherwise known as “final salary”) or a combination of the two. The value of a defined contribution pension will depend upon the investment performance of the funds invested. The value of the defined benefit pension will be calculated based upon a person’s number of qualifying years in employment and their salary at date of leaving. The value of the pension at the date of leaving is commonly indexed to RPI/CPI to a maximum of 5% p.a. (or benefits accrued after April 2009 to a maximum of 2.5% p.a.).
You may also have contributed to a UK personal pension, usually offered by a life insurance company with funds invested in their “with profits” or unit trust funds. The value of your pension will depend upon the investment performance of the funds invested.
We know that it can be difficult to find up to date information on your pension(s), particularly if you have accumulated a few over the course of employment in the UK. For this reason, all you need to do is complete a Florin Authorization Form with as much information as you have and we will do the work for you.
The retirement options available to you under your existing UK pension(s) will depend upon the type of UK pension you currently have (for example, whether it is a defined benefit or defined contribution pension) and what retirement options the scheme offers you. As UK pensions’ legislation has changed over time, the retirement options available under different UK pensions can vary widely with some offering flexibilities and others being quite restrictive. For this reason, we feel it is important to understand your retirement options before starting to draw your UK pension.
No. Unfortunately, the transfer of a UK pension to a US retirement plan, including an individual retirement account (IRA), cannot be made as such plans are not permitted by the Internal Revenue Service (IRS) to accept a transfer of funds (e.g. roll-over) from a UK pension scheme.
On 6 April 2015, the UK government introduced new UK pension freedoms which are revolutionizing how people are now able to access their UK personal and occupational pensions. Examples include the ability from age 55 to draw as much or as little from your pension as desired with no upper limit (or the need to purchase an annuity) and the ability to pass on your pension to the beneficiaries of your choice.
All these freedoms now offer great opportunities for UK pensions and general wealth planning. However, for the British expatriate living in the US, there are two important questions to consider:
By undertaking a review of your pension with an adviser, you can determine what retirement options you have under your existing UK pension(s) and whether these options are flexible and/or meet your retirement objectives. If your existing pension does not offer the types of flexibilities that you desire this could be a reason to seek a pension transfer.
A concern for many people is how their loved ones will manage financially when they die. Understanding what pension benefits your loved ones would be entitled to in the event of your death is, therefore, very important. Such benefits can differ considerably depending upon your pension scheme.
For example, if you have a UK defined benefit/final salary pension, typically your spouse will be entitled to only 50% of your annual pension per annum (indexed link). While it is not uncommon for a percentage of your pension to also be payable to children under the age of 18 (or 23 if in full time education), this is not always the case.
Where your current pension scheme does not offer the types of death benefits that you would desire from your pension, this could be an important factor in your decision on whether to transfer your current scheme to another provider/type of pension.
No. As part of the UK’s new pension flexibilities, from 6 April 2015, the UK’s 55% death tax that used to apply in certain circumstances has been abolished.
Now, if you die before the age of 75 no UK tax charge will apply when your beneficiaries take a lump sum or draw an income from your pension even if you had already drawn from your pension. If you die after age 75, your beneficiaries could draw pension income and only be subject to applicable income tax or take a one-off lump sum and in 2016/17 be subject to a 45% UK tax (although this is expected to be reduced by the Government after 2017).
While the new UK pension flexibilities are enabling people to manage their pensions much more freely, for those with public sector defined benefit schemes, the UK government has banned any transfer to other types of pensions (like personal pensions) to take advantage of the increased flexibility. As the majority of public sector schemes operate on an unfunded basis, out of general UK taxation, if more people were to transfer out this could expose the UK Treasury to significantly higher annual costs.
However, transfers from private sector defined benefit schemes to defined contribution/personal pensions (excluding pensions in payment) can continue, subject to any person wishing to transfer receiving the required financial advice.
UK private sector defined benefit schemes continue to be heavily in deficit. As at 31 December 2014 the FTSE 250 defined benefit pension deficit topped £12 Billion alone, this is an increase of £5 Billion from the year before. 16 FTSE 250 companies have pension liabilities greater than their equity market value. If you have a deferred UK final salary scheme, an important question to consider is will my pension fund have sufficient value to meet my pension benefits in the future?
A SIPP (or Self Invested Personal Pension) is a type of UK registered personal pension that, as opposed to a conventional personal pension, can offer greater flexibility and individual control. For more information, check our SIPP page.
A QROPS (or Qualifying Recognised Overseas Pension Scheme) is a pension scheme set up outside of the UK and regulated as a pension scheme in the country where it is established. A QROPS must notify HM Revenue and Customs (HMRC) that it meets specific conditions set by UK legislation to receive UK pension transfers. In addition, the jurisdiction where the QROPS is established must also permit such a transfer. For more information, check our QROPS page.
Yes, most UK pension plans are able to be transferred to a SIPP or QROPS, as appropriate.
There can be a number of benefits to transferring your existing UK pension to a SIPP or QROPS, as appropriate. However, it is important that you get advice from an investment advisor like Florin Pensions before making any decision to transfer. Your current pension may have certain guarantees/benefits which could be lost upon transfer and, therefore, need to be considered carefully. For more information, visit SIPP and QROPS.
Before determining what type of pension transfer is most appropriate for a person, it is important for an advisor to understand the person’s retirement needs and objectives. In addition, consideration needs to be given to the person’s country of residence, which can have tax implications in relation to how the transfer is treated by the local tax authorities and whether a double taxation agreement is in place between the QROPS jurisdiction and the person’s country of residence. A QROPS is not therefore, always the best option for a client. In addition, for US residents/taxpayers, there are potentially significant US tax implications associated with undertaking a transfer from a UK pension to a non-UK based pension which should be fully considered with your tax advisor.
UK pension plan administrators vary widely in the speed of their response to pension transfer enquiries and the transfer of funds. However, most transfers take around three months to complete. We will do our best to expedite the process, including regular follow-ups with pension administrators and providing you with progress reports.
If you worked in the UK you may qualify for a UK State Pension. A UK State Pension is payable to residents in the US at the same index linked rate as if you were living in the UK. If you have enough insurance under both US and UK schemes to qualify, you can receive state pensions from both countries. However, if you are entitled to a UK State Pension, the amount of US pension you receive may be reduced in certain circumstances because of US windfall elimination provisions.
For further information on receiving your UK State Pension, including obtaining a pension forecast, visit the GOV.UK website.
On 6 April 2015 the UK Government introduced revolutionary changes to UK pensions’ legislation which provided increased flexibility in the ways people can now access their occupational and personal pensions from age 55. However, the UK Government was concerned that more people in public and private sector final salary schemes would want to transfer their pensions out of these schemes to gain access to their pension pots (through what is called a cash equivalent transfer value (CETV)) to take advantage of this increased flexibility. Final salary schemes, unlike other occupational pensions, provide a guaranteed income for life at retirement which is calculated based upon the number of years an employee worked and their final salary.
Given that the majority of public sector final salary schemes operate on an unfunded basis out of general UK taxation, if more people were to take their CETV, this could expose the UK Treasury to significantly higher annual costs. As a result, legislation was introduced which banned people from transferring their unfunded public sector pensions out to schemes like personal pensions. Examples of unfunded public sector schemes include the NHS, Teachers Pension and Civil Service Pensions.
In contrast, transfers of private sector final salary schemes to defined contribution/personal pensions (excluding pensions in payment) are still able to be undertaken in the UK.
Whether or not you should transfer your final salary pension to a Self-Invested Personal Pension (SIPP) will depend upon a number of factors which should be carefully considered with your financial adviser. As required by UK pensions legislation, your financial adviser should commission a pension transfer report from an appropriately regulated UK financial adviser (unless the transfer value is £30,000 or less). This report is commonly referred to as a Transfer Value Analysis (TVA). A TVA compares the benefits being given up from a defined benefit pension scheme with those that could be offered by a personal pension scheme like a SIPP. Factors that should also be considered by your financial adviser include your personal circumstances, retirement objectives, financial situation and investment risk profile.
A final salary pension promises to pay a pension for life, providing the pension has sufficient assets to meet its liabilities. Such a pension also increases to keep up with inflation (but often capped to 2.5% or 5% p.a.). A move to a personal pension, like a SIPP, offers much more flexibility in terms of benefits, but you must rely on its investment performance which is unguaranteed and could mean the risk of lesser income than if you remained in your final salary pension.
However, some people do opt to transfer out their final salary pensions to meet their specific retirement objectives. Some examples include: if you are single and don’t need the benefits offered to a spouse/dependent; you want to take early retirement; you want to have access to your pension in amounts and at times under your control; you want to pass on to your spouse 100% of your death benefits; you have a long term partner, but are not married, and want that person (or any other relative for that matter) to inherit your pension on your death; you have an important and immediate cash need; or there is clear evidence that your pension scheme has a significant funding deficit and may not be able to meet its liabilities in the future.