What you should know British Pensions in USA
If you are reading this article, you almost certainly live in the USA or intend to move to USA and you want to understand the treatment of British pensions in the USA. You really do not need an unwelcome tax bill, or to find out that if you had taken an action, you would have avoided a particular tax bill payment. For example, did you know that when you access your tax-free lump sum in USA that it is NOT tax free in some states. That is why professional advisers call this lump sum element the Pension Commencement Lump Sum (PCLS), because they know that it can be taxed (not through federal tax, but through State tax) in the USA.
The next problem is how you can receive advice about British pensions in USA!
You will be pleased to find out there are multiple regulated solutions available for you. The most surprising one is that, not only can you speak with your current UK pension adviser, provided their Professional Indemnity Insurers allow this, but there are a range of specialists who focus on British pensions, who live in the USA. You just need to ensure you are talking to the “real thing” and not someone claiming to be an expat “wealth manager” or British “pension expert” who does not even live in the USA (or worse, lives there but works for a company from Spain, France or the Cayman Islands); often, they are nothing of the kind as there is no regulation on the terms that people use to describe themselves or their unregulated companies if they are not actually based in the UK, nor regulated in the USA.
So, the first rule?
Ask these questions of your adviser whether they are in the USA or not:
- Does their PI cover specifically cover British pensions advice (for example some in the USA do NOT cover pensions from other countries)?
- You should ask to see their certificate of qualification for pensions advice (never do business with an adviser who does not have an authorised certificate in their own name)?
- Does their regulated company hold terms of business with your current pension provider (most US based advisers will not hold terms, and thus they force you to transfer your pension even when it is not necessary to do so, and often to more expensive pension products such as QROPS or International SIPPs)?
See our NOTES section at the end for more comprehensive details on these matters.
FREE OFFER: If you are unsure, contact us and we will do a spot check on your behalf for free of the people who are providing you with advice.
Five minutes spent checking your adviser out could save you a spending retirement contemplating loss!
The second rule of receiving pensions advice
It is not about the pension!
It is about what your goals and ambitions are, along with your attitude to risk, and you need to consider your investments as well as your pensions; this was true pre and Post Brexit.
In other words, you need a review, and ideally you should be seeking that review with advisers that are qualified and regulated in both territories (you need the local advice from America about what is available just like you need the specialist advice from the UK side. The Aisa Group have advisers in both the UK and USA, qualified to both UK and SEC standards. Who better to contact about your UK pensions in USA and investment?
Our firms in USA and in the UK operate under both regulatory setups and they have access to a securities Portfolio Manager which is part of the same group.
What is the SEC?
The SEC is the Securities and Exchange Commission that regulates financial entities in the USA. Our UK company is SEC licenced. If you are US resident, you should always ask about this before engaging a financial adviser. We also hold insurance and liability cover.
UK Regulations - FCA
Only financial advice companies with licences in both the UK and USA are able to provide the necessary level of regulated advice you need on your British pensions. Especially, if you are a member of a final salary pension scheme.
Does the Aisa Group have licences within the EU/EEA as well as the USA and UK?
Yes. This is relevant for advice to US residents who have lived and worked in the European Union.
What about advice on British pensions in the USA forUS citizen residents in EU/EEA states going forward?
MiFID rules for the EU do not actually cover pensions at all- a myth further exploited by EU based advisers located in Spain and France who are looking for business by moving British pensions for US citizens resident in the EU. In fact, given the UK requirement to achieve a professional level standard of qualifications it is far more likely that a UK based firm will be better placed to understand your British pensions and advise you accordingly.
What is the Overseas Transfer Charge?
The OTC is a 25% charge on transfers from British registered pensions to a QROPS if the investor is not resident in the EU/EEA or not resident where the pension is being transferred to(there are different rules for offshore employer schemes). This makes the transfer to a QROPS unviable for US residents.
Can I still pay into my UK pension if I live abroad?
What if I access my UK pension and return to the UK, can I still pay into the pension?
You should be very careful about accessing your UK pension if your intention is to return to the UK and contribute in future. You may be restricted by the MPAA to £4,000 pa contributions.
What are QROPS?
QROPS are recognised overseas pension schemes that can accept transfers from UK registered pensions?
Should I transfer to a QROPS if I move abroad?
In the majority of cases, it is unlikely that a QROPS will be a suitable option. However, there may be circumstances where this is considering- depending on Double Tax Treaties, the Lifetime Allowance and the pension rules where you currently reside.
Lifetime Allowance(LTA)- What is it?
There is a limit as to how much you can hold in a UK pension without being taxed on a transfer abroad or when you access the pension.
What is the LTA limit?
It is currently £1,073,100 (2022-23), though there are previous protections that may provide for a larger LTA.
Can I move a QROPS back to a UK pension and is it a good idea?
Yes, and many are doing so where their plans have changed or where the initial transfer to a QROPS was found to be inappropriate.
FREE OFFER: If you are unsure, contact us and we will do a spot check on your behalf for free of the people who are providing you with advice.
Five minutes spent checking your adviser out could save you a spending retirement contemplating loss!
There appears to be a misconception, particularly among US based advisers, that UK advisers cannot advise residents in the USA on their UK/British pensions. It may be due to a lack of understanding or a deliberate attempt to encourage people to transfer their UK pensions to alternative arrangements for the purpose of generating commission or fees for themselves.
EU and UK advice firms cannot market their services within the USA or travel to the USA to offer their services. It does not prevent those with UK pensions contacting their UK advisers in the UK to advise them about their current UK pensions- provided their Professional Indemnity Insurers allow this.
However, there are also firms in the UK that hold passported licences into the SEC and can advise in the USA quite legitimately – we are one of those firms.
In fact, given the UK requirement to achieve a professional level standard of qualifications it is far more likely that a UK based firm will be better placed to understand your British pensions and advise you accordingly.
That being said, if you have British pensions left in the UK- you really ought to have a review of these, in conjunction with your other pensions and investments. The Aisa Group have advisers in both the UK and the USA, qualified to both UK and US standards. Who better to contact about your British pensions?
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