Personal Finance

Ways to Handle Your Pension Pot if You’re an Expat

winding mountain road in the US in evening: pension pot if you're an expat

Pensions can be complicated at the best of times, but what happens when you’re planning to emigrate or already an expat living abroad? This article explains some of the things you might want to think about and how best to handle your retirement pension pot if you’re an expat living abroad.

If You’re Leaving the UK

It’s perfectly possible to remain a member of a pension scheme registered in the UK, regardless of where you live or where your employer is based. You certainly don’t have to give up your pension pot if you’re an expat. There are various other options you can consider too:

Leave your pensions in the existing UK plan 

You can claim your pension benefit from age 55 and you may be able to get your 25% tax free lump sum and then use the remaining funds to provide your income in retirement.

Transfer your UK pensions to an approved scheme in the country you’re relocating to 

This is possible, but you’ll need to find an overseas pension plan which is a qualifying recognised overseas pension scheme (QROPS). 

A QROPS is an overseas scheme which the UK recognises as eligible to receive transfers from UK pensions. To qualify as a QROPS, the scheme must meet a set of UK tax law requirements. To make your research easier, there’s an official list of schemes which meet the conditions.

Pay contributions into a UK pension plan from abroad

You can continue to make contributions to a pension scheme based in the UK even if you move abroad. Depending on where you relocate to, there may be some limitations to the tax benefits that you can get, and you may lose the tax advantages you would have if you lived in the UK.

If You’re Moving to the US from the UK

Now that it’s compulsory for UK employers to enrol their employees into a workplace pension scheme, it’s likely that if you’re of working age and moving abroad, you’ll have built up some pension benefits. If you’re making the move to America can you transfer your pension to the US or are you better off leaving things as they stand? 

The answer may come down to whether it’s even possible to transfer your existing UK pension. It isn’t possible to transfer your UK pension plan to a 401k and transferring your UK pension to another plan is generally only possible if the receiving pension scheme has a qualifying recognised overseas pension scheme or QROPS status. 

The single biggest reason your options are limited is that there are currently only two recognised schemes in the USA who can accept UK transfers. Unless you happen to work for one of these two sponsoring employers, you won’t be able to transfer your pension to the US.

So, What Are Your Options?

There may be a possibility that you could set up a SIPP scheme and transfer your existing UK pension to that. A SIPP is the most flexible and versatile personal pension arrangement you can have and there are specialist pension experts who can help you find the right SIPP provider to set one up, even after you have made the move to the US.

If You’re Moving to the UK from the US

If you’re a US citizen living in the UK you can retain your US pension and let the invested funds continue to grow. It is possible to transfer your US pension to a UK scheme, but this can be costly because the UK pension regulations are particularly complex and you would need to find an authorised specialist advisor.

On top of the complications surrounding pension transfers from the US to the UK, you will also have to pay US tax on the amount your transfer. This could mean you lose up to 30% of your pension pot if you’re an expat to US tax. The upside of this tax charge is that once this 30% bill is paid, that is the last US tax bill you will have to pay on your pension once the transfer is complete.

If you’re still working and expect to continue to work and contribute to a pension for some years to come, it may be worth considering taking the 30% tax hit. Doing so may be painful at the time but, once your funds are in a UK pension, you can continue to make payments, and let your pension pot grow until the time comes to retire and reap the rewards of your hard work.

 

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