What to do with a UK Pension now that we’ve moved back to the States?
April 11, 2016 8:16 AM   Subscribe

After living in the UK for a couple years my wife and I - US citizens - have moved back to America. What can we do with my wife’s pension scheme now that she’s no longer in the UK and has changed employers? Complication: since she didn’t accrue enough pensionable service at her job while in the UK, my wife isn’t able to retain any benefit in the scheme she was enrolled in. She’s been given two options:

1) Take a refund of only the contributions she paid.

2) Transfer the full value (which includes employer contributions) to another pension provider.

Obviously she prefers the second option, but is this even possible since she’s no longer working in the UK? This was a defined contribution scheme, which seems rather straightforward to deal with, but can she just transfer the whole pot to some kind of low-fee equity fund until she reaches pension age? Would this be a SIPP? Is this relatively easy to set up and manage online? Any information about US or UK tax implications for something like this would be a great bonus.

My wife’s former employer can’t give any advice on the matter and we’re trying to avoid having to look for a financial adviser here in the States who handles such things.
posted by theory to Work & Money (3 answers total)
See if they can roll it over to a US IRA, call Fidelity or any other IRA broker and see what they have to say.
posted by Ruthless Bunny at 8:17 AM on April 11, 2016

You unfortunately really need to speak to a tax advisor of some sort concerning the taxability of any kind of direct refund, both here and in the UK. In the US equivalent, if you took a direct refund of contributions, not only would they be taxable as ordinary income, but there would be a significant penalty if your wife were under a certain age (or fell into a few other exceptions). You want to make sure that wouldn't happen to your wife, here or (more likely) in the UK. This isn't something to trifle with.
posted by praemunire at 9:38 AM on April 11, 2016 [1 favorite]

I know more about this than I would like, due to my own two pensions stuck over in the UK.

There is a system called QROPS (Qualifying Recognised Overseas Pension Scheme), under which you can transfer UK pensions to other countries. Unfortunately, I have not, in my years of research, found one person who was able to do a UK-US pension transfer under QROPS. And this from the FT seems to suggest that it's not possible, due to conflicting rules between the IRS and HMRC.

(HMRC publishes a list of qualifying overseas pension schemes on their website and I've called lots of the US providers to ask about it and none of them know what I'm talking about. On my second call to Fidelity to ask about it, I finally found someone who had heard of QROPS and I was told that they do not participate in it, despite being on the list)

Also, be mindful/aware of FATCA reporting, which I believe the IRS has started monitoring closely and for which non-compliance carries heavy penalties.

You could also call the Pensions Advisory Service in the UK, which is a free, non-profit service provided to answer questions and provide assistance with UK pension issues. Don't be surprised if they can't really answer your questions on this though - it is pretty specialized and I had no luck when I tried them a few years ago. Although, who knows, maybe there is a greater awareness on this now.

As far as investing within the pension, it shouldn't be hard to transfer investments around within the account in which it is held in the UK. IIRC, my pensions (one at Aviva and one at Standard Life) allow me to switch between funds. So you could theoretically just drop it all into some kind of low-cost balanced fund and let it sit there if you have to. It would probably be best to call the provider directly to check on this though.

If you decide to discuss this with a tax expert, find one who has specific expertise on UK/US tax issues - there are a number of them out there. When I asked my regular tax guy about this a few years ago, he had no idea what I was talking about.

Kinda sucks, but it is what it is. I'm hoping that in the next few decades, a workable solution is implemented so that when I retire I don't have to receive regular £5 checks (and then pay to cash/convert them) or some other ridiculous thing just to get my money from my small UK pensions.
posted by triggerfinger at 10:25 AM on April 11, 2016 [4 favorites]

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