With around 750,000 UK expats setting up residency in the USA, the subject of transferring your UK pension into a US scheme is often a hot topic amongst those it concerns. Many US citizens may also have worked across in the UK for many years and built up a sizeable pension in a UK scheme which they may want to transfer back again.
The big question is whether you can transfer your UK pension to a USA pension and the good news is that there are options available if this is relevant to you. It is possible to move your retirement fund into an American retirement plan, but only in certain situations. Due to current laws, you are not able to transfer your pension to a 401k.
If you or your employer make contributions to a pension scheme in the UK, you should be able to claim tax relief on what you have contributed, sometimes up to 45%. Receiving tax relief on pensions means some of your money that would have gone to the government as tax will go into your pension pot instead. This is very comparable to tax deductible contributions in America.
The UK government get some of this revenue back when you draw your pension, as UK pension income is taxable. The UK government will not want this potential tax revenue going out of the country, so the only way to move your pension away from the UK, without incurring significant tax charges, is to transfer to a QROPS.
Move your pension to a QROPS in the USA
A Qualifying Recognised Overseas Pension Scheme (QROPS) is an overseas pension scheme that HM Revenue & Customs (HMRC) identifies as suitable to receive transfers from registered pension schemes within Great Britain. In order to be eligible for a QROPS, the scheme has to meet eligibility requirements which have been set up by UK tax law. A QROPS pension scheme is very similar to a SIPP (Self-Invested Personal Pension) in that it provides you with more control and flexibility over your pension funds.
The benefits of a QROPS in the USA
There are several major advantages to transferring your pension to a QROPS if you live in the USA, including no requirement to purchase an annuity at any time, consolidating multiple pension schemes into a single QROPS and increased flexibility on how you can capitalise your funds with limitation not restricted to the UK or the USA. Another advantage is that you can pass 100% of your remaining funds to your partner or beneficiaries.
Be clear on your pensions and QROPS optionsÂ
If you are hesitant of your pension situation, or want to know more information about pensions and QROPS in the USA, it’s always worth speaking to a financial advisor who should give you sound advice and give you options for the best way forward. An expert financial advisor will break down the various complexities, options and advantages of a QROPS in the USA and they shouldn’t put you under any pressure to take them up on any offers they present.
