IAM assists British pension-holders living in the USA with the management of their UK pensions in investment accounts that can accommodate multiple currencies, global investments, and offer transparency and reasonable fees
Investment Management for UK Pensions
Many US residents with British pensions are concerned about how their UK pension accounts are invested and may find these accounts awkward to manage and their fees difficult to understand. In addition, there is currency risk to be considered if the British account is invested in Sterling-denominated assets but the account owner intends to spend the pension funds in a different currency.
IAM assists British pension-holders living in the USA with the management of their UK pensions in investment accounts that can accommodate multiple currencies, global investments, and offer transparency and reasonable fees. We manage UK pensions in a manner similar to our globally-diversified US investment accounts so that all investments can easily be treated as a whole and can work together as one portfolio using a strategy appropriate for our client’s specific situation.
A British pension may be transferred to either a SIPP (Self-Invested Personal Pension) or a QROPS (Qualifying Recognised Overseas Pension Scheme). A SIPP is a UK pension plan equivalent to a US self-administered IRA. A QROPS is a non-UK pension scheme that can accept transfers from a British pension scheme without incurring UK tax consequences.
Residents of certain countries may benefit by transferring their UK pension to a QROPS located in a well-regulated secure jurisdiction whose pension rules are more flexible than those of the UK. The following benefits may be available:
- Lump-sum distributions greater than the 25% Pension Commencement Lump Sum under UK rules.
- No withholding tax on distributions.
- Greater control and flexibility of pension money.
- No withholding tax on death benefits.
However, if you are a US taxpayer then please read the information below because a QROPS transfer may have severe US tax implications.
QROPS Transfer Issues for US Taxpayers:
- US QROPS accounts
The US Internal Revenue Service does not permit tax-free transfers from non-US pension plans to US pension plans. Therefore it is not possible to do a QROPS transfer to a US pension account such as a 401k or IRA. Some US financial institutions have set up QROPS accounts, perhaps in anticipation of the day these regulations may change – however, transferring a British pension to such an account risks severe US, and perhaps British, tax consequences. Many financial advisors, even those working for the firms that have set up US QROPS, are unaware of these issues.
- QROPS transfers for US taxpayers
It is possible for a US resident or other US taxpayer to transfer their British pension to a QROPS scheme located outside the USA. However, the US tax implications of such a transfer are at best unclear and at worst very unfavorable. The IRS may consider such a transfer to be a distribution from the British pension scheme and a re-contribution to the QROPS. In such an instance US tax may be due in the year of transfer to the extent that the transferred monies have not previously been subject to tax – basically the same tax treatment as a distribution from a US IRA or 401k.
Some non-US (and at least one US) financial institutions are recommending the transfer of British pensions to QROPS in jurisdictions that have a tax treaty with the US, such as Malta. Some of these institutions even go so far as to claim that their QROPS are “US qualified”. This is extremely misleading since the word “qualified” has a very specific meaning in US tax law and a non-US pension plan by definition cannot be “qualified” in this sense. If it was a “qualified plan” then it would be possible to do a rollover from the QROPS to another type of US qualified plan such as an IRA or 401k – but tax-free rollovers from non-US pension plans to US pension plans are not allowed under IRS rules.
We highly recommend that you obtain tax advice from a suitably qualified cross-border tax professional before committing to such a transfer.
- QROPS transfer alternatives
QROPS were originally created to allow British pension holders not resident in the UK to transfer their pensions to their country of residence, thus avoiding highly restrictive UK pension regulations which mandated annuitization and limited access to pension funds. However, over the years since QROPS were established in 2006, British pension regulations have become more flexible; in certain instances even allowing full distribution of pension benefits as a lump sum. QROPS may not be the best solution for certain British expatriates any longer; especially if they are US taxpayers. We highly recommend speaking with a specialist in British pension matters regarding your options.
A better alternative for US taxpayers may be a properly managed SIPP (Self-Invested Personal Pension). This is the British equivalent of a US self-administered IRA account. Such an account can be managed in US Dollars and can hold US or global investments if currency issues are a consideration. Certain SIPP accounts may also offer more transparency and better investment options than typical UK pension schemes and may have lower transfer and maintenance fees than a QROPS.
*Please note that IAM is not authorised by the UK Financial Conduct Authority and our pension advice is not intended for UK residents.
**IAM is not licensed to give tax advice on pension transfer matters – nothing on this page or website should be construed as tax advice. We highly recommend obtaining tax advice from a tax professional familiar with cross-border tax treaty issues before undertaking a pension transfer in any jurisdiction. We would be happy to refer you to such a tax professional.