If you hope to transfer your pension from the UK to the States, read on to find out why you can’t and how best to access your British pension anyway. Although transferring your UK pension to a US pension scheme is impossible, there are various tax-efficient ways around this.
As an international pension transfer specialist, I can handle all the paperwork in the checklist below and help you access your UK pension fund in the USA, whether you are a UK, US or other national. Contact me, Dan Ward.
Also consider: My guide on transferring your UK pension to Australia
Looking to transfer your UK pension?
Speak to me, Dan Ward, about transferring your UK pension funds to the USA.
Transferring a UK pension checklist
- Collate existing UK pensions
- Request a CETV (Cash Equivalent Transfer Value)
- Conduct a cost and performance comparison
- Identify the best solution for the USA – I can help with this
- Submit transfer request documentation to the existing and new provider
Always seek advice about transferring pensions overseas, as your UK pension funds may be at significant risk if you fail to do so.
Please be aware that in the UK, the average regulated financial adviser must be sufficiently knowledgeable about overseas pension transfers and their tax implications to guide you safely, and most are not.
I have years of experience helping UK expats and others access their retirement savings and make tax-efficient investments worldwide. Feel free to contact me to discuss your plans, and beware of financial advisors who are not internationally licensed.
Understanding your UK pension scheme
Before you can transfer your UK pension, you must determine which form it takes. Most current or former UK residents will have at least one of the following:
- Workplace plan
- Private arrangement
- UK state pension
Except for the state pension, for which you become eligible by making qualifying national insurance contributions, every type of UK pension plan attracts tax relief to incentivise retirement savings. In many ways, this works similarly to the tax-deductible contributions for a 401 (k) or 403 (b) retirement plan offered by employers in the US or for your deductible IRA (individual retirement account) if you have one.
In most cases, you receive tax relief automatically on UK pension contributions. For example, when you or your employer contribute £80, your pension provider asks the UK government to top it up to £100. Some higher-rate taxpayers may have to claim via a self-assessment tax return in certain circumstances.
The growth of your UK pension savings is also tax-free. Tax becomes payable for UK residents when they begin drawing their UK pension income, but only when their total annual income exceeds their income tax rate.
You should be entitled to a tax-free pension commencement lump sum while still a UK resident. Non-UK residents may face tax charges, depending on their residential status elsewhere.
In the UK, your maximum annual contribution to your pension, including tax benefits, is £60,000.00, provided you earn less than £200,000.00. This allowance is tapered incrementally for higher earners.
Meanwhile, your deductible contributions are classified according to age and retirement plan type and have varying annual caps in the US.
It is understandable, then, that in both the UK, His Majesty’s Revenue and Customs (HMRC) and the US, the Internal Revenue Service (IRS) are cautious about pension transfers to foreign pensions, given the generosity of their respective tax benefits and the differences between the two systems.
Occupational UK Pension Plans
Since 2012, employers have been legally obliged to enrol their employees in a company scheme automatically. Unless you opted out, you are likely to have one or more of these workplace pensions if you were ever an employee in the UK.
All occupational plans will be either a defined benefit, also known as a ‘final salary’ scheme, or a defined contribution scheme, sometimes called ‘money purchase’.
If you are unsure which type your employer offers, ask to speak with the pensions manager at work.
For help tracing an old occupational pension plan, visit the UK government’s Pensions Tracing Service.
Consider consolidating your employer pensions through a transfer to a self-invested personal pension, SIPP, for ease of management and as an excellent way to prepare for moving to the US. I will explain more about the SIPP pension wrapper as an alternative to UK pension transfers overseas below.
A defined benefit (DB) pension scheme is most common within the UK public sector, but a few private sector employers offer them too. They are treasured because your pension income is guaranteed and does not depend upon the investment performance of your contributions; this is why some DB plans are called ‘unfunded’ schemes. Instead, your benefits accrue through pensionable service, and the taxpayer or your employer will pay them when you retire.
Should your private sector employer become insolvent, your DB pension plan may be safeguarded by the Pension Protection Fund (PPF), which will pay up to 90% of the value of your pension by way of compensation. However, you must have reached your state retirement age before you can claim. You can check the PPF website to see if your private sector DB scheme is eligible for this.
Take extra care when researching a UK pensions transfer to the US or anywhere when you have a DB scheme, as the benefits, which may include spousal or dependent allowances, are challenging to replicate.
A transfer to a defined contribution pension plan of any type inevitably exposes your pension to not inconsiderable market volatility. In such cases, speak with your provider and consult a regulated financial adviser.
Every other workplace pension plan falls under defined contribution, DC, within which many subtypes exist. Some DC plans may force you to purchase an annuity, reducing the size of your pot in return for a regular income when you retire. You may transfer your workplace pension to a SIPP for a choice over annuities.
In every case, the UK pension provider invests your contributions for you in a restricted range of funds, and their subsequent growth determines how much money you will receive in retirement.
Exceptions to this are group SIPPs and small self-administered schemes (SSAS), both allowing for greater investment flexibility and control compared to standard pensions.
A popular choice within some professions, group SIPPs are a way to aggregate individual savings to extend purchasing power. For example, a few solicitors, accountants or dentists may use them to invest in commercial property from which to work.
You may pool your individual SIPP with the others or manage it yourself, but as long as you all share the same provider, it is still a group SIPP.
Small Self-Administered Scheme, SSAS
An SSAS is available only for directors and senior executives of small private companies. Up to 11 individuals can participate in each scheme, which, like a group SIPP, permits investment in commercial real estate, among others.
Private UK Pension Plans
If you are self-employed or want to make additional retirement savings, you may have opened a private or personal pension with an insurance company, building society or other provider. All private arrangements will be some form of DC scheme and likely highly suitable for transfer within the UK or to an overseas scheme. However, before you do so, check for exit penalties and fees. You may have already borne the brunt of higher charges earlier in the scheme, and transferring out of it could be more costly than sticking with it.
For further information about the specific type of pension scheme you hold, look out for the annual statement summarising how well your investments are performing. Two of the most popular personal pensions are stakeholder and SIPP.
Stakeholder pensions have been around since 1988; they are simple, accessible to low-income people, and have a small annual management charge of 1.5% or less. Monthly contributions may be as little as £20 a month, and you can stop and start paying into them at will.
Every stakeholder is guaranteed free of exit charges should you wish to transfer your pension to a SIPP instead.
A SIPP is subject to all the same rules about contributions, tax relief and withdrawals as all other UK pension schemes, but they allow you to invest in a broader range of funds and asset classes.
You may manage a SIPP yourself if you have sufficient investing expertise, or you can work with fund managers, stockbrokers or financial advisors. A few SIPP providers will not work directly with members of the public.
A vital benefit of a UK SIPP is the ease with which we may convert it into an international SIPP. This grants access to almost limitless worldwide investment opportunities and, crucially, allows your savings to accrue in $USD.
Charges will be markedly higher with some SIPPs, reflecting the advanced technical expertise necessary to manage the funds, but the larger your pot, the more negotiable these fees are. I can help you with this too.
You can quickly check your eligibility for the UK state pension by logging on to the government’s pension forecaster website. Here you can also find out your state retirement age and, in some cases, learn how to fill in any missing National Insurance (NI) contributions to increase the state pension payable to you.
You must have made at least ten years of qualifying NI contributions, but these do not have to be consecutive years, and you do not have to be in paid employment to make them.
The UK state pension is unsuitable for transfer to the US or anywhere, including within the UK. However, you may still access and convert it into $USD when you withdraw it from your bank account.
Your eligibility for Social Security in Retirement in the US is always based on work. Use the US government social security website to check your entitlement.
Can I claim both US and UK state pensions?
Qualifying for both the UK state pension and for US Social Security in Retirement is common. Still, your time spent living and working in the UK, or other countries, will force a recalculation and reduction of your US Social Security under the Windfall Elimination Provision (WEP).
The more decades of social security taxes you have paid in the US, the smaller the reduction under WEP.
Why is there no Qualifying Recognised Overseas Pension Scheme for the US?
To be QROPS or ROPS, the overseas scheme provider must be broadly similar to UK providers regarding tax and withdrawal arrangements, and the current differences between the US and the UK systems make this impossible.
What to do with a UK pension when moving abroad to the States?
Although you can’t transfer a UK pension to the US directly, such as to your 401(k) or IRA, you have other options. You may transfer your UK pension funds to a QROPS based in Malta, decide against a pension transfer entirely, or transfer your UK pension to an international SIPP.
How do you choose which is the most suitable?
Direct payment to your American bank account
If you can’t or don’t want to transfer your UK pension plan, you can ask your provider to pay your benefits directly to the US or an offshore bank account, perhaps in the Isle of Man.
Transferring money in this way inevitably incurs currency conversion costs which can fluctuate and eat away at your pension benefits. Please discuss this option with me if it is something you are considering.
I can help you reduce currency risk through an alternative method of bringing your pension to the USA.
UK Pension Transfer Options
Your choices here are between a QROPS and an international SIPP. Both allow you to denominate $US and facilitate the pension commencement lump sum, tax-free, while still a UK resident. Further, they grant access to a wide range of global investment opportunities while allowing you to hold your retirement savings in one manageable pot.
A pension transfer to any QROPS in the European economic area, Malta is a popular choice, will trigger an overseas transfer charge if you are ordinarily resident in the US.
An international SIPP is an alternative to UK pension transfer overseas which caters perfectly to the needs of expats. Their flexible features are also ideal for anyone who wishes to be internationally mobile with a UK pension in tow, particularly those considering a phased approach to retirement.
The range of funds you may invest in with a SIPP include, without limitation:
- Mutual funds
- Investment trusts
- Unlisted shares
- Venture capital trusts
- Depositary interests
- Hedge funds
- Commercial property
A pension transfer to an international SIPP is always free of the overseas transfer charge because although you may denominate $US, your money remains in the UK. All SIPPs and SIPP providers are regulated by the Financial Conduct Authority, giving you peace of mind.
How do I transfer my UK pension to the USA FAQs
Do I have to pay tax on my UK pension in the USA?
Whether you pay taxes in the US on pension benefits from the UK is complex and depends largely on your residential and citizenship status. Dual tax agreements are currently in force between the UK and the US and between Malta and the US, meaning that, in theory, you should not be taxed more than once.
Feel free to contact me to discuss your circumstances in detail, and I can identify the most tax-efficient course of action for you.
Can I transfer my pension internationally?
Many UK-registered pension schemes are suitable for transfer to a qualifying recognised overseas pension scheme, QROPS or ROPS. HMRC set up this scheme to facilitate the transfer of UK pensions out of the UK to offshore arrangements that meet its strict requirements.
You can find a list of providers on the HMRC website, updated on the first and fifteenth of every month. Most UK providers will refuse a pension transfer to a scheme that isn’t listed, but you must ensure that any QROPS you are considering is there. Doing so protects you from pension scams and charges of up to 55% of the transfer value.
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.