The popularity of Self-Invested Personal Pensions (SIPPs) is on the rise, and a growing awareness of the benefits that they can offer, especially to expats living and working overseas, has resulted in a 20% increase in the number of SIPPs being opened in the past three years.1
In 2006, the UK government announced that anyone with a personal or occupational UK pension fund2 could transfer their pension to an alternative programme. A key part of this “pension freedom” was that anyone who left the UK or intended to move abroad [becoming non-resident for tax purposes] would be able to transfer their retirement savings to an alternative pension scheme, potentially based outside the UK.
The rising popularity of SIPPs among British expats is testament to their effectiveness as a versatile platform (tax wrapper) for pension funds. In this article we’ll explore how transferring your UK pensions to a SIPP could provide greater flexibility in terms of investment and currency choice, and could ultimately enable your family to benefit to a greater extent from your pension funds.
Why are ‘International’ SIPPs such a popular choice for expats?
1. Mitigating Currency Risk
All SIPPs by definition are UK products regulated by the Financial Conduct Authority (FCA) [and are subject to the same rules in terms of investment and drawdown options], but ‘International’ SIPPs provide an additional layer of functionality and benefit as they can be denominated in various currencies, enabling expats who earn income and incur expenses in different currencies to manage their currency exchange risk.
International SIPPs enable British expats to maintain control over their retirement savings when living abroad. With the ability to be involved in how their pension funds are invested, they can work with their financial advisor to adjust their investment strategy, contributions, drawdown, and retirement age to suit their unique circumstances.
3. Asset Diversification
Using an International SIPP, British expats can diversify their retirement portfolio across different asset classes and geographic regions, thereby managing risk and potentially increasing long-term returns.
British expats can consolidate all their fragmented legacy pensions into a single International SIPP for cost and time effective investment management and administration.
5. Maximising the benefits for your loved ones
If your pension funds are held in an International SIPP, 100% of those funds will be passed to your beneficiaries if you die before age 75, and a marginal rate of UK income tax will apply if death occurs after age 75.
If your pension funds are held in a Defined Benefit or Final Salary scheme when you die, your spouse will only receive a reduced benefit, and your children could receive no benefit from them, depending on their age.
6. An International solution
An International SIPP is a UK-regulated product and will continue to work for you, whether you live and retire abroad, or return to the UK.
What are the potential downsides to be aware of?
International SIPPs benefit from robust UK pension regulation, but this can be complex and subject to change.
As an expat it’s also essential to understand whether contributions to and withdrawals from an International SIPP would have any potential tax implications in your country of residence.
And there are further considerations when determining whether transferring your UK pension to an International SIPP is the right option for you. By transferring to an International SIPP you would be taking on the management of the investment risk and if you are transferring from a Defined Benefit scheme you would effectively be giving up a guaranteed income for life. There could also be a charge for transferring your pension overseas and you could potentially pay more for overseas pension products and associated costs.
So, whilst International SIPPs can offer numerous valuable benefits to British expats, if you’re considering transferring your UK pension arrangements to an International SIPP it’s important that you seek advice from a qualified financial advisor to ensure that it’s the right option for you, depending upon your individual circumstances.
As international financial planners, wealth managers and pension experts, Forth Capital can help you to understand your options and whether an International SIPP is the right choice for you. To arrange an initial consultation with one of our qualified financial advisors, contact us today.
1. Source: Broadstone Consultancy research – Financial Conduct Authority (FCA) data
2. Please note that the UK State Pension cannot be transferred