I get a lot of enquiries from expat Brits with existing UK pensions asking how to get their money into a more suitable scheme. Here’s what you need to know about International SIPPs, which offer the most efficient route to transferring your UK-based funds while under the shield of the UK’s regulatory framework. I’ll explain what an International SIPP is, and who it’s for. As always, I’ll cover the pros and cons of having an International SIPP and how it works for non-UK residents.
Also consider: My in-depth guide to QROPS for Expats
- An International SIPP is one of the easiest and most cost-effective ways to consolidate one or multiple UK pension schemes into one SIPP, ready for drawdowns in your new local currency at the time of retirement.
- International SIPPs are still fully regulated by the UK’s Financial Conduct Authority (FCA), giving you total peace of mind about the legitimacy and transparency of your new personal pension product.
- It’s possible to tap into an International SIPP and begin to draw down money from the plan at the age of just 55, which is lower than a standard company pension pot.
- Personal pensions were introduced in the mid 1980s but limited by the narrow range of funds operated by insurance company investment managers. Modern day international SIPPs offer a more flexible type of personal pension with a wider range of investments.
What is an International SIPP?
Self-invested personal pensions (SIPPs) originated as part of the UK government’s 1989 budget and 17 years later they were formalised as a registered personal pension plan type. This decision was taken to try and encourage more people to save as part of their retirement planning and not rely solely on their state personal pensions. International SIPPs operate in the same way as a UK-based SIPP, except your funds can be invested in a variety of currencies, as well as indices, equities, and bonds.
International SIPPs are designed solely for the best interests of British expats, and they have a similar structure to a UK SIPP. They also have the bonus of being regulated by the UK’s Financial Conduct Authority (FCA) like a standard UK-based SIPP.
How do International SIPPs work?
One of the main benefits of having an International SIPP is that you can retain the capital you’ve built up in your existing UK pension savings in a host of fiat currencies. For example, if you’re a British expat that’s moved to live in a country within the European Union, you can steadily convert your GBP funds into Euros (EUR), ready for when the time comes to draw down in your new local currency.
As with all other types of SIPPs, International schemes also develop free from income tax and capital gains tax, which is why SIPPs are generally known as a ‘tax wrapper’.
Why have an International SIPP?
If you’re a British citizen that’s chosen to live overseas, an International SIPP could be the ideal overseas pension solution for you. Transferring your existing UK pension into an International SIPP gives you the freedom and flexibility to consolidate benefits within a previous UK pension scheme for use within your new country of residence.
It also means you can invest in a broader spectrum of fiat currencies and assets to enhance your pension portfolio. All under the strict regulatory environment of the UK’s FCA.
Who is an International SIPP suitable for?
Essentially, an International SIPP is well-suited to any British expat. It gives you the utmost flexibility in terms of your investment choices and is also considered the cheapest option compared with a Qualifying Recognised Overseas Pension Scheme (QROPS).
The abolition of the Lifetime Allowance (LTA) Limit also means the tax benefits of a QROPS over an International SIPP are essentially rendered negligible.
Is an International SIPP the same as QROPS?
No, there are several subtle differences between an International SIPP and a Qualifying Recognised Overseas Pension Scheme (QROPS). Sure, both are private pension plans you can use to transfer an existing UK pension, but the biggest difference is that a QROPS is housed outside of the UK and therefore beyond the jurisdiction of the UK’s tax regime.
However, transfer charges to a QROPS are only waived by HM Revenue and Customs (HMRC) providing the new scheme is situated within the European Economic Area (EEA), or if the scheme is offered by your employer.
There is one similarity between the two. Both International SIPPs and QROPS are defined contribution (DC) schemes. This means both plans will allow you to leave more to your loved ones when you pass away.
One of the main reasons British expats used to be recommended to transfer a UK pension to a QROPS was the issue of the Lifetime Allowance (LTA) Limit. By moving your pension offshore, you wouldn’t be subject to the LTA and increased taxes beyond the £1,073,100 threshold. However, the abolishment of the LTA Limit from April 2023 has removed one of the biggest benefits of a QROPS.
There are other differences between International SIPPs and QROPS in terms of how you receive your pension income. With any kind of UK SIPP, you can get a 25% lump sum free of tax once you reach the age of 55 (57 from 2028) so you don’t pay tax.
As for a QROPS, you can get a 30% lump sum tax free from the age of 55 (and in some cases, it can be as early as 50). However, the costs incurred of transferring your UK pension and having it managed within a QROPS make the benefits of these schemes negligible compared with an International SIPP.
Advantages of using an International SIPP
If you’re wondering why International SIPPs are so popular with British expats, I’ll run through the main advantages of transferring your existing pension to one of these schemes.
Flexible choice of investments
International SIPPs operate in a similar vein to a standard SIPP, giving you total freedom to choose the types of financial instruments or assets you invest in. If you work closely with a reputable financial adviser, they may be able to draw up a structure to diversify your portfolio across multiple asset types, hedging against potential risks for the long term.
This means your International SIPP could feature a balance of FTSE 100-listed equities, government bonds, mutual funds, exchange-traded funds (ETFs), and even commercial property and real estate investment trusts (REITs). If you also like the idea of investing in physical commodities, International SIPPs are also compatible with investments in precious metals like gold bullion.
Removal of Lifetime Allowance Limit means you won’t incur additional taxes
Historically, British expats have always had to be mindful of the Lifetime Allowance (LTA) Limit, which levies additional taxes on those who invest more than £1,073,100 into their International SIPP. These taxes used to be as high as 55% on additional funds invested.
However, the recent 2023 Budget from the UK government included plans to scrap the LTA Limit. By abolishing this threshold, effective from April 6, 2023, the UK government have made it possible for you to invest an unlimited sum of money into your International SIPP without incurring additional taxes.
Just be mindful of the pension annual allowance, which caps the amount you can pay into your pension during a single financial year and still obtain tax relief from the government. This used to be £40,000 per annum but was raised in the 2023 Budget to £60,000 per annum.
Access your International SIPP from the age of 55
When you choose to open any pension plan, it’s important to understand the implications and restrictions of each scheme you enter. This includes the age at which you can access said funds.
Standard UK SIPPs can be accessed at any time from the age of 55 through to 75, meaning you can withdraw money then. You’ll be pleased to know that International SIPPs are no different. However, this age threshold is rising to 57 from April 2028. It’s also worth noting that any residual pension fund can be sent on to your spouse or nominated beneficiary should you pass away before your 75th birthday.
This is good news for those who, as part of their retirement planning, envisage quitting work early. That’s because a standard company pension is unlikely to be accessible until the age of 60 or even 65.
Considerably cheaper than investing in a Qualifying Recognised Overseas Pension Scheme (QROPS)
Opening an International SIPP is indeed a much more cost-effective solution than transferring your existing pension into a QROPS. According to some expat financial advisers, an International SIPP can cost as little as £180 a year in fees, while a QROPs is more likely to incur annual fees that run into four figures.
That’s because most QROPS will incur hundreds of pounds in setup fees as well as hundreds (if not thousands) of pounds in annual management fees. There may even be a drawdown fee on certain QROPs to take into account.
Still regulated by the UK’s FCA
All SIPPs (inclusive of International SIPPs) are regulated by the FCA, giving you significant protection over the transparency and legitimacy of the schemes you invest in.
This is an important safeguard for anyone thinking of investing their hard-earned money in an International SIPP. The FCA currently regulates the financial services of over 50,000 firms across the UK, ensuring fair and competitive products for all customers, including British expats looking for a safe way to utilise their previous UK pensions.
For SIPP providers to be authorised by the FCA, they must comply with a stringent set of requirements and complete comprehensive supervision with FCA officials. The FCA also has a plethora of powers at its disposal to act against service providers that fail to meet its exacting standards.
Still bound by the terms of the Financial Services Compensation Scheme (FSCS)
As all pension providers of International SIPPs must be regulated by the FCA, this also means certain pension schemes are bound by the terms of the FSCS too.
The FSCS is a framework which protects the deposits and investment funds of individuals if the provider of pension plans regulated by them goes out of business. It was devised by the UK government, offering a free route to claiming back all the money you’ve deposited, up to a maximum of £85,000 or £170,000 for joint accounts.
According to the FSCS website, FSCS protection varies based on the type of pension product invested in. The FSCS website has a ‘Pension Protection Checker’ which allows you to answer a couple of simple questions to find out how much protection your pension has.
Most International SIPPs are portable
In my opinion, the portability of International SIPPs is another reason why these types of self invested pension plans are a credible option for British expats. With an International SIPP, you’ll usually have the flexibility to transfer out and into a more suitable UK-based SIPP if your position changes and you decide to move back to the UK.
In some cases, the portability of International SIPPs means you may not incur any exit or pension transfer fees either.
Drawdowns can be received tax-free
British expats wishing to take drawdowns from an International SIPP can do so gross of UK tax. This means you won’t pay a penny in income tax to HM Treasury. This is all part and parcel of the Double Tax Agreement (DTA) made between the UK and many countries in mainland Europe, North America, and Oceania.
Essentially, this means you’ll only incur future tax liabilities on your drawdowns in your new country of residence, subject to their tax thresholds.
To draw down funds gross of UK tax from an International SIPP, you’ll need a Nil Tax (NT) code. If you were to make a drawdown on an International SIPP without an NT code, you will pay income tax in the UK at the emergency rate. Don’t worry, this can be claimed back at a later date, but it’s an unnecessary hassle you can do without.
To secure an NT code, simply head to the nearest government office in your new place of residence. Pick up and complete a form to demonstrate you’re paying income tax in this country. Then visit the HM Revenue and Customs (HMRC) website and fill out a P85 form. You can complete this online for the ultimate convenience. You’ll then be sent an NT code to your new address.
Still eligible for tax reliefs should you return to the UK
Given that an International SIPP remains a UK-based pension scheme, it’s still possible to qualify for relief on this plan should you choose to return to the UK to live.
Currently, the UK government tops up every 80p you invest in by 20p, giving you an additional 20% in SIPP tax relief. This relief is eligible to higher-rate and additional-rate taxpayers in the UK, although you’ll need to claim this 20% relief back through self-assessment tax returns.
Non-taxpayers, such as those unemployed or earning an income that’s not deemed taxable, can also qualify for taxation relief on yearly investments up to £3,600.
Disadvantages of using an International SIPP
It’s also important to be mindful of the drawbacks of going down the route of an International SIPP. I want our users to understand both sides of the coin so that any expats or soon-to-be expats can make an informed investment decision. This will also ensure you make the right inquiries with any reputable, fully regulated adviser you employ to put together a financial planning package on your behalf.
Those with defined benefit UK pensions risk losing valuable benefits
It’s important to understand what type of pension you currently have in the UK. If it is something known as a defined benefit (DB) pension plan, this includes a string of guaranteed benefits that aren’t afforded to several other pension schemes.
These benefits include a guaranteed income, income increases in line with inflation, set annuity rates and even benefits for your spouse. Those who choose to move their DB pension to an International SIPP will almost certainly lose these benefits in an instant. That’s because an International SIPP is known in the industry as a defined contribution (DC) pension plan.
A DC pension does not promise a defined income. Instead, your income at retirement depends on how much you invest and the performance of what you’ve invested.
If you’re thinking of moving from a DB pension plan to an International SIPP, I highly recommend that you seek guidance from The UK Pensions Advisory Service, which can offer impartial assistance and put you firmly in the picture.
Self-investing always carries the risk of significant losses
As an International SIPP is a defined contribution pension, what you have to live off at retirement age entirely depends on how much you invest and what you choose to invest in. If you go down the self invested personal pension route, this carries a high degree of risk since you may not know the full ins and outs of the financial instruments you invest in.
It’s always best to seek the guidance of a regulated financial adviser to explore the possibilities with UK pension transfers into an International SIPP. They may be able to recommend ways of allocating funds to a weighted investment portfolio that properly hedges against economic and geopolitical risks.
If you are thinking of transferring an existing UK pension to an International SIPP, you should consider the cost of pension transfers. There are several fees you may incur when it comes to switching a UK pension to any of the leading International SIPP providers, including:
Exit costs for existing schemes
Your current UK pension plan may include exit costs for your scheme, mainly if you have previously consolidated multiple UK pensions into a single SIPP or QROPS before.
If this is you, I highly recommend that you check out the scale of these exit costs first before you do anything else, as they can be high and possibly high enough to deter you from transferring it to an International SIPP.
It’s less likely you will face exit fees on personal UK pensions or company-defined contribution schemes.
Costs incurred with your financial adviser
It’s important to clarify with your financial adviser the fees they charge as part of the overall cost of any pension transfers. There are two types of charge:
Commission-based financial advisers earn their corn by recommending financial services or products to their clients and claiming remunerations direct from the providers of said services or products.
The more clients they recommend a particular service or product, the more commission they receive. Regulated advisers must still prove that the services and products sold to clients are fully suitable.
Fee-based financial advisers will charge you a pre-agreed fee for offering their services. It may be defined as an hourly rate or a fixed percentage of the value of your pension. They may also charge an additional recurring fee for continued management of your assets if needed.
Brokers and advisers operating under this model have an obligatory duty of care to their clients. This means they must always act in your best interests and assess all available products or solutions before coming to a final decision.
Unlike commission-based advisers, fee-based advisers must also disclose any potential conflicts of interest too.
Not necessary for those living outside the UK in the short-to-medium term
You must also decide whether this type of pension transfer is wholly necessary for your financial situation. If you only plan to live outside of the UK for a handful of years and return in the future, it might be detrimental to pay the fees involved in a pension transfer and best instead to handle your finances when you return to British soil.
How do I go about transferring my UK pension to an International SIPP?
From what I gather, the process of transferring a standard SIPP to International SIPP providers is a relatively straightforward one. As with most stock transfers, you will need to contact the provider you want to transfer first to prompt the transfer. Given the importance of protecting your pension assets for the future, I’d highly recommend that you use the services of a financial adviser to handle the transfer from start to finish.
They will know the best pension providers to move your current pension to for the cheapest price and the least administrative hassle for you.
International SIPP FAQs
What is an International SIPP?
Can I have an International SIPP if I live overseas?
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
Overseas pension transfers can be complex. Make sure you take financial advice before you transfer your funds.