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Pension Transfer Options For Holders Of UK Pensions Living In The US (formerly QROPS in the US)

An explanation of UK pension transfers for residents in the US, including an explanation of why you cannot use a ROPS/QROPS as part of your pension transfer

Written on 31 January 2023

Unlike in many other countries, there is no legal mechanism for transferring UK pension funds to the USA, in recent years many holders of UK pension schemes have transferred their funds using what was then a QROPS and is now a ROPS (Recognised Overseas Pension Scheme) via an offshore location, typically Malta.

This article was originally written to explain the options for QROPS/ROPS for residents in the USA seeking to transfer their pension out of the UK, however due to changes in the UK pension transfer rules and the lack of ROPS in the USA, a ROPS is no longer a suitable option for US residents.

This article now provides an explanation of ROPS and the pension transfer options for US residents.

What is a ROPS?

A ROPS approved pension fund is very similar to a SIPP (Self-Invested Personal Pension), in that it provides you with more control and flexibility over your pension funds.

However, there are two major differences between a ROPS and a SIPP:

  1. The funds invested in a ROPS are, typically, held in a jurisdiction other than the UK.
  2. ROPS are only available to UK non-residents whereas a SIPP is available to UK residents or non-residents.

The potential benefits of a ROPS

There used to be several major advantages to transferring your pension to a ROPS if you live outside of the UK.

  • No requirement to purchase an annuity at any time.
  • After a specified time period, the UK lifetime allowance is removed.
  • Increased flexibility on where you can invest your funds.
  • You can pass 100% of your remaining funds to your partner or beneficiaries without a potential 55% tax on death.
  • Having your pension in the country you live in, depending upon where you live.

Issues with ROPS in the USA

It is not possible for the holder of a UK pension fund, resident in the USA to transfer that fund either as a stand-alone scheme, or in amalgamation with a USA-based pension arrangement such as an IRA or a 401K. There are, currently, no ROPS approved pensions registered in the USA.

Whilst the UK regards the USA as a suitable jurisdiction for receiving an exported British pension, the Internal Revenue Service (IRS) do not, currently, permit it. There is an irrevocable disparity between the coding systems for pensions in each country.

It was, however, possible to transfer a UK pension to a ROPS in an alternative jurisdiction which may have been suitable at the time. However, for US residents this has been a contentious issue for some time now since the IRS may deem these transfers as a taxable event. 

Pension transfer options for US residents: ROPS vs SIPP

Some of these benefits have now been eroded due to new pension legislation introduced by the UK, which may mean a SIPP may be just as suitable, of course dependent upon your personal circumstances.

  • The 55% tax on death was removed in 2015; so now, if you die before age 75 there is no tax to pay for any beneficiaries. If you die after age 75 the beneficiary will pay tax at their marginal income tax rate, they may decide to take either lump sum or income from the inherited plan.
  • The old rules used to require a SIPP member to purchase an annuity from age 75, this was abolished in 2011.
  • Many SIPPs now allow you to invest in a whole range of international funds.

 

Overseas transfer charges

On 8th March 2017, the UK government introduced a new overseas transfer charge which could affect many ROPS transfers which were requested on or after 9th March 2017. If you live in the USA and are considering transferring your UK pension to a ROPS in an alternative jurisdiction, outside of the US, you will attract the 'overseas transfer charge' of 25%. In addition, as mentioned previously, the IRS could also consider the transfer a taxable event.

To find out more, please read our detailed article covering overseas transfer charges >

Speak to an independent expat pensions specialist to get clarity on your options

As pensions transfers, especially for US residents, is a complex topic it may be more suitable for you to consider using a multi-currency SIPP based in the UK rather than a ROPS or alternative scheme.

If you unsure of your position or would like more information about pensions and QROPS in the USA, request a free introduction with one of our trusted UK/USA cross border partners, regulated to provide advice in both the US and the UK.

As part of your free introduction, you will be offered an initial free consultation during which the adviser will help you understand the complexities, benefits, and options of a pension transfer as a resident in the USA, including an explanation of ROPS. There is no obligation to proceed with any advice provided.

Request free introduction to expat pensions specialist >

 

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