Defined Benefit Pension Transfer To The USA
If you live in the United States and are considering transferring your defined benefit pension, this article will outline everything you need to know about the transfer process, including time frames, cost and your options.
Should I Transfer My Final Salary Pension Scheme?
Before getting into the process of bringing your defined benefit pension to the US, it is first worth asking if it is worth it.
Generally speaking, defined benefit pension schemes are incredibly valuable, as they offer guaranteed income for life. The default position of most policyholders should be to leave your defined benefit pension alone. The guaranteed income cannot be replicated in markets, the value is usually inflation linked and protected, and most schemes are reasonably well funded (and in any case are protected by the Pension Protection Fund).
However, many people (especially wealthier individuals) still wish to explore their transfer options as US residents.
Reasons To Consider Transferring Your DB Pension
Below are some of the considerations to take with respect to your final salary pension scheme:
You wish to be able to pass on 100% of your benefits to loved ones. Most defined benefit schemes have limited death benefits, and typically will only offer 50% of the pension income to a spouse in the event of death. With a traditional, defined contribution pension (such as an International SIPP, or SIPP for US residents), you can pass on 100% of your pension to your partner, or leave it to your children.
You do not need guaranteed income, and you would prefer to invest the funds into the financial markets. Many people, whilst understanding the value of guaranteed income, may not need this, especially if they have existing US 401K accounts or IRAs.
Your guaranteed transfer value (CETV) is very attractive, and offers a good commutation factor. Some schemes will offer over 25x the annual income payment to transfer out. This may be due to UK Gilt rates (government borrowing costs) or because the scheme is underfunded, and wishes to incentives transfers out.
You are worried about the funding of the scheme or state of the UK economy, and wish to detach your retirement savings from exposure to geopolitical risks.
How To Transfer Your Defined Benefit Pension As A US Resident
Defined benefit pension transfers for US residents are complicated, and there are different costs involved. To understand these costs, we outline the position of the regulator (the FCA) below.
The Financial Conduct Authority requires all policyholders with guaranteed transfer values over £30,000 to take regulated financial advice from a pension transfer specialist.
What this means is that essentially, even if you are certain you want to transfer out of your DB pension scheme in the US, you will have to pay for a detailed report, which ultimately issues a 'final advice declaration.
This final advice declaration is a signed document from the report writing specialist which adheres to FCA guidelines, and allows your existing DB pension scheme to release the funds and transfer them to a new pension.
However, since you live in the United States, an FCA regulated report writer cannot advise you in isolation. This is because an FCA, UK based DB specialist will likely not have SEC regulations in place to advise US residents.
UK To US Pension Transfer
This means that you will need to work with 2 different entities. A cross border UK/US financial advisory firm that is SEC regulated, such as ourselves, as well as a UK specialist report writer to attain the final advice declaration required.
In short, the report writer assists with the documentation to have your defined benefit pension transferred to the US, and the SEC regulated adviser will set up your new pension in the background, prepare all of the documentation, facilitate the transfer and manage the ongoing investments.
Naturally, the above process is not cheap. Defined benefit pension transfers can take between 1-3 months to complete with a lot of paperwork completed throughout.
How Much Does It Cost To Transfer My Defined Benefit Pension To The US?
To keep things simple, we will explain the layers of fees and different parties involved, as well as the approximate cost of each party.
The FCA regulated defined benefit pension report will cost anywhere between £3,000 and £5,000 for one scheme. Each additional scheme will incur a smaller charge.
The SEC adviser (who works as a bridge and set up and manages your new SIPP account in the US) will typically charge between 1% and 5% of the total transfer value.
Your new pension scheme provider (International SIPP) may charge a small fee for the setup. This depends on which SIPP provider is used.
So, in total, we have the report fee, the adviser fee and the pension fee.
At The Wealth Genesis, we are classed as a fiduciary, meaning we only act in our client's best interests and do not sell products to clients. We charge a flat-fee of £3,000 for all pension transfers, regardless of the volume of amount of pensions in question. Read more about how much we charge for defined benefit pension transfers to the US below:
Our Fees - The Wealth Genesis
Transferring DB Pension To An International SIPP (Self Invested Personal Pension)
The best, and current only solution for US residents is to transfer your final salary scheme to an international self-invested personal pension (also known as the US SIPP, SIPP For US Residents, International SIPP).
The International SIPP is a UK based, HMRC registered and FCA regulated pension scheme that is specifically built for US residents, offering various advantages to the US client, mainly full flexibility and control of your pension pots.
You can view a full breakdown of the US SIPP, as well as the benefits in our article below:
Maximising Your UK Pension Benefits In The US - The Wealth Genesis
Independent UK Pension Transfer Advice For US Residents
The Wealth Genesis is a cross-border financial advice firm, regulated by the SEC to provide retirement planning advice to US residents.
All of our advisers are dual qualified, with US and UK qualifications, to ensure you receive the best advice available. Our fully independent status allows us to consider the whole of the market, providing bespoke, commission free and trusted advice to British Expats in the United States.
To understand how we can help your retirement in the United States, schedule a free initial consultation using the diary below.
Defined Benefit Transfer To The US FAQs
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Since UK pensions and US retirement acccounts operate under different rules (age of access, tax-free cash payments etc.) HMRC does not deem them like for like.
As such, you cannot consolidate a UK pension with a US retirement account. -
We understand it can be frustrating to pay for a report fee, especially when you know you want to transfer your DB pension and do not need the guaranteed income.
However, the FCA has strict rules in place designed to protect you, and any transfer value over £30,000 has to follow the process, which takes a lot of time and work from the report writer. -
Yes, you can still transfer your DB scheme to the US, even if the report writer advises not to.
In this instance, you will be classed as an ‘insistent client’ and will have to confirm you have received regulated advice but wish to proceed with the transfer. -
Typically, from start to finish, the whole transfer process will take around 1-3 months.
Once all documentation has been completed, the report will take between 10-21 days to be completed. Then, all documents including the final advice declaration is submitted to your existing DB scheme for transfer. -
This will depend on your position and requirements moving forward, but from a cost perspective, the Novia Global SIPP & The Morningstar International SIPP provide the best value and service.
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Yes, providing you are over the age of 55, you can take your 25% PCLS payment as soon as the transfer has been completed.
Note, this is tax-free in the UK and not necessarily for US residents. Be sure to consult with your adviser.
