Are you sticking with your old pension provider out of a false sense of loyalty or because you are not sure what better options there are around? In this article, I explain why you might want to consider UK pension transfers to a SIPP.
The results of a recent UK survey by PensionBee regarding pension saving revealed some surprises which turn the conventional trope that young people are reckless with their money on its head.
In fact, Generation Z (adults under 24) are the most likely generation to be saving into a pension scheme and to know how much they have saved to date. Having grown up with the internet, they manage their retirement savings online and keep track of what they have in real-time. Compare that to some of my Generation X clients who still rely on annual paper pension statements and have often lost track of some pension funds altogether.
I’d hazard a guess that many young people will be much more on the ball about switching pensions if they can get a better return elsewhere. And they will be right to do so. Loyalty to old pension providers can cost you dearly, so it is worth taking a look at what you have invested where, and considering your options.
Pension Transfer Has Pros And Cons
Before we look at the pros and cons of pension transfer, I’d like to state the usual caveat that there is no one-size-fits-all solution when it comes to any aspect of financial advice, so please don’t take this as personal advice. Use it instead to start a conversation with your financial adviser about your unique situation. Definitely don’t make any decisions without consulting a professional. Pension transfer can sometimes mean losing certain benefits and guarantees and is not something to be done without due care.
Reasons For Pension Transfer to SIPP For Expats
The average person will have six jobs during their working life – a figure expected to rise for millennials and Gen Z. Often, moving jobs means a new pension pot, so that leaves the average person juggling a number of different pensions, with all the providers chosen by the employer. That means they haven’t necessarily been selected with the employee’s best interests in mind.
Of course, it doesn’t make financial sense to move a pension if your employer is paying into it, but once you have moved on to a new job, you are not obliged to keep your money with the pension provider chosen by your ex-employer. Indeed, you may find that your former workplace pension’s modus operandi is outdated and doesn’t fit your lifestyle. If communication is limited to one statement through snail mail per year, it won’t be easy to know whether you are on track to meet your retirement planning goals.
In addition, you could well get a better return elsewhere. This is particularly pertinent to expats who have access to more flexible savings options when compared to the limited options offered by many workplace UK pensions.
Is It Time For A Retirement Planning Review?
If you aren’t sure what pension scheme you have or wonder whether your investments could be performing better, it is definitely time for a review. The first step is to list all your old pension schemes, assess their performance, and work out whether they are meeting your needs.
If you think you have lost track of any UK pensions – a problem that is much more common than you would think – you can use the Pension Tracing Service of the government to locate them.
Considerations Before Consolidating of Executing a UK Pension Transfer
Once you know what you have, you can decide whether to make a transfer or consolidate your pension scheme with different providers into one pot. Keeping track of one retirement fund is obviously a lot less hassle than trying to juggle several, and it is much easier to assess performance.
On the other side of the coin, you need to weigh up the cost of transferring and what you might be giving up. This will depend on the value of your investments and the services that you use.
For many expats a self-invested personal pension (SIPP) is an attractive option with cheaper fees and a better fund range.
More On Self-Invested Personal Pension (SIPP)
Personal pensions were initiated in the 1980s by the UK government with the goal of encouraging people to participate in retirement planning and saving in general.
Insurance companies offered most of the UK pensions available, which, although being well-structured pension schemes, restricted many plan-holders to a limited range of funds operated by investment managers of the company.
International SIPP offers a much more supple personal pension scheme where the plan-holder has a much wider range of investment options and can consolidate and transfer benefits from UK registered pension schemes to their country of re
An international SIPP is an addition to the UK Self-Invested Personal Pensions. There aren’t many differences between an International SIPP and a UK SIPP as their structures are very similar, and the UK’s Financial Conduct Authority regulate both types of pension schemes.
The International SIPP was initially designed to cater to non-UK residents wanting to keep their pension funds in the UK instead of transferring them to an overseas pension scheme.
Furthermore, foreign internationals who I’ve in the UK also utilise International SIPP pension investment vehicles to have flexible retirement benefits and more investment options.
How an International SIPP works
The UK’s Financial Conduct Authority regulates International Self-Invested Personal Pensions. An iSIPP is created by a non-UK resident who is a UK citizen to manage their UK pensions. There are no obligations to buy an annuity, and an international SIPP provides regular or variable income.
Furthermore, an international SIPP offers more flexibility and investment options, currency choices, and tax benefits. The tax treatment of all contributions into UK pensions will be determined by where you decide to situate your main residence.
In essence, the International SIPP was created to facilitate UK pension transfers which Qualifying Recognised Overseas Pension Schemes could not help. Pension providers altered their systems to allow clients to designate their investment funds in currencies other than the Sterling. An international SIPP is required to be associated with the currency that the pension holder earns or will be using during their retirement.
International pension advisers are in a better position to aid in navigating future tax liabilities in accordance with UK regulations. Cross-border financial advice is often included in an inclusive financial planning package, but in more complicated cases, clients should seek advice from quality specialist pension advisers. International SIPP providers are frequently more equipped to offer expat financial advice.
Benefits Of An International SIPP
While you are accumulating your pension fund, it is crucial to consider changing your investment strategy. An International SIPP investment offers clients greater investment freedom and flexibility as opposed to a traditional standard pension, which has limited options regarding investment funds, and clients are restricted in making their own investment decisions.
SIPP pension investment vehicles generally include
- Investment trusts
- Mutual funds
- Shares that aren’t listed
- Insurance bonds
- Overseas stocks and shares
- Exchange-traded funds
- Unit trusts and OEICs
- Non-residential land and property
Additionally, expats who still pay UK tax will benefit from pension contribution relief on retirement funds.
A pension scheme established for expats challenges the traditional means of investing and allows clients to feel comfortable as the investment risk of their UK pension vehicle aligns with their goals.
Clients can hold their UK pension capital in all significant currencies in an International SIPP.
Self-Invested Pension Investments grow free of income taxes and capital gains tax. International SIPPs qualify for tax relief, meaning if a person transfers into an iSIPP while living abroad, they can continue to make regular pension contributions either by an employer or individually when they return to the UK.
The pension freedoms legislation allows individuals to draw their retirement fund down by flexible access rules to the income they require. An important point to note is that any money that is drawn down will be subject to UK income tax after the PCLS is exhausted.
Those whose funds are approaching the LTA limit should urgently consider their options. Clients can withdraw tax treatment of 25% and Income options of a SIPP as a Pension Commencement Lump Sum tax-free if they are considered a UK resident.
The Difference Between QROPS and International SIPP
Similar to an International SIPP, a QROPS caters to expats who have existing UK pension rights. The primary difference between the two is that QROPSA is generally more suited for clients who have larger UK pension pots, meaning those who are close to the Lifetime Allowance. Contrary to UK pensions like SIPPs, a QROPS facilitates to mitigate future tax liabilities when clients exceed their allowance when they draw benefits, as a QROPS doesn’t have a Lifetime Allowance.
If you are an expat with a UK pension and would like to chat through any aspect of transferring a pension or taking out a SIPP, please get in touch at email@example.com.
Senior Financial Consultant- Highly Commended Emerging Talent of The Year (International Investment Awards 2019)
I aim to maintain and grow an excellent relationship with each client which lasts throughout their working lives and beyond. I strongly believe that a good financial adviser can make a significant difference to an individual’s financial success and positively impact their lives, which is why I love doing what I do.