Quick Facts on Your Pension if You are a UK Expat in the USA

There are undoubtedly many British expats in the United States, and the US is home to expats from the United Kingdom who have been able to blend in and enjoy their life in their ‘borrowed’ country. But if you have been in the United States for some time and are thinking of how it will all work with your pension once you are eligible to receive it, you may be facing more than a few concerns. The right knowledge and information, however, can go far indeed. Here are some quick facts on your pension if you are a UK expat in the USA.

The background of pensions for British expats in the USA

Some UK expats have placed their savings for retirement in pension schemes overseas, whilst there are those who have chosen to place their savings in UK-based schemes. So, if you are wondering which one is the best option for you, here’s the thing: many British expats who live and work in the US may request to have their pensions transferred to the US, but along with this comes some challenges and risks. For one, the US does not accept pension plan transfers which are not organised in the US, which means that a UK-based pension may not be transferred. You do have an alternative, however: you could, for instance, transfer your UK-based pension scheme to a QROPS (now referred to as a ROPS), and this has served as a legitimate solution for the pensions of many UK expats for some time.

In March of 2017, however, the government of the UK announced a 25 percent taxation on pension transfers unless the person was a resident of the actual country where the ROPS programme or scheme was registered. Because of this, the ROPS sector experienced a downturn and a decrease in pension transfers.

Your options

Since 2015, there have been some significant changes in the pension legislation of the UK, and this, in turn, has resulted in enhanced freedoms specifically for defined contribution plans or schemes. Prior to the changes, members who availed of a defined contribution scheme were only allowed to get a specific maximum income per year from their pension. This was referred to as a ‘capped’ drawdown, and the maximum income was restricted by the government of the UK. But the legislation has since changed, and these rules are no longer in place, which means that the ‘capped’ limit is now replaced with a more ‘flexible’ drawdown of income.

When you use a flexible drawdown, your pension can continue to be invested whilst you take your income, but you can withdraw as much as you want and how and when you want it once you reach the age of 55. You can even withdraw your entire pension if you wish to do so. 

The benefits and treaties 

The US and the UK have a double taxation treaty to prevent double taxation for individual residents in either place or jurisdiction. In general, a UK pension scheme will tax the pension income at the source, and if the scheme has taken too much in taxes, the expat can get tax credits. On the other hand, you also have the option to apply for a no-tax (NT) code given by the HMRC, and although this process can be quite lengthy, once you complete it, your pension in the UK will be paid in gross and all you have to do is organise your payable taxes in the US. 

For the best clarification and confirmation on what you can do with your pension scheme in regards to pensions for expats if you are an expat in the US, you can always seek help and guidance from pension experts, especially those who are well-versed in expat pensions.