Understanding and Managing UK Pension Transfers to the USA: A Comprehensive Guide for British Expats

Expat Pensions

If you are currently receiving a UK pension and want to learn about international removals from to the USA or are coming up on the time when you need to consider how you will transfer a UK pension to the USA, read on to find out everything you need to know. From tax treaty information and avoiding double taxation, to which forms and processes you’ll need to complete and what you need to be aware of, it’s all here.

Claiming a British Pension in The USA

The United States and the United Kingdom have a reciprocal pension agreement that ensures that pensions will be up-rated to match the inflation rate. This agreement allows for contributions made in either country to count towards the pension allotment of the other, which means that even if an individual has not made enough contributions towards the state pension of either country, having worked in both countries may still qualify them for a full state pension in their retirement destination of choice.

To ensure that both pension systems do not charge taxes on these benefits, it is recommended to claim tax relief using the US Individual 2002 form and the IRS Form 8802 within the US-UK tax treaty. It is also possible to receive pensions from both the US and the UK. However, individuals should be cautious to avoid losing money to taxation through the Windfall Elimination Provision (WEP), which changes the way that US social security benefits are calculated.

Will My Pension Scheme Be Recognised?

State pension use between the two nations is a well-regulated and controlled interaction, but private pension schemes can be more complicated. To transfer a private pension to the US, your scheme must be recognised through the Recognised Overseas Pension Scheme (ROPS).

These are foreign pension schemes that meet the standards set by the British revenue and customs agency (HMRC), however, that does not necessarily mean they are authorised/accepted by the HMRC. The system was established in 2006 to ensure that British pensioners would be able to access their savings even when moving abroad. The system can also potentially shelter the money from UK taxation, allowing single taxation in the country of residence.

If your current pension plan does not meet the necessary ROPS requirements, then you should consider transferring your pension before you leave the UK. There are only a few US pension schemes that will qualify for ROPS use, and relatively often changing regulations mean it’s useful to check carefully when you are ready to think about making a move. Transferring pension schemes can sometimes lead to charges or penalties, so make sure you consult with an expert before risking your life savings.

How to Transfer Your Pension from the UK to the US

To transfer your pension from the UK to the US, you will need to do the following:

  1. Find a pension transfer specialist who is authorized to handle transfers between the UK and the US. This person will be able to help you understand the rules and regulations that apply to your situation.
  2. Gather all of the necessary documentation, including your pension statements and any other relevant information about your pension plan.
  3. Work with your transfer specialist to complete the necessary paperwork and apply for the transfer. This may include filling out forms, providing proof of identification, and providing proof of your pension plan.
  4. Once your application has been approved, your transfer specialist will work with your pension provider in the UK to arrange the transfer of your pension funds to the US. This may take some time, so it’s important to be patient.
  5. Once your pension funds have been transferred to the US, you will need to find a retirement plan in the US to invest them in. This could be a 401(k) plan, an IRA, or another type of retirement plan.

It’s important to note that transferring your pension from the UK to the US may have tax implications, so it’s important to get advice from a qualified tax professional before proceeding. Additionally, there may be fees associated with the transfer process, so be sure to factor these into your decision.

Other Options

Although transferring your pension scheme to a ROPS may or may not the right move for you, another potential plan could be to move your savings into a 401k scheme or Roth IRA. This will not be as simple as transferring money from one source to another, and with taxation regulations and withdrawal penalties, this may not be a viable solution for most people.

Under current UK regulations, pensions cannot be withdrawn until you reach the age of 55, so transferring the funds into a US pension scheme, even though this could mean heavy penalties, could be an option if you need to access the money more quickly. US pension schemes allow early withdrawal (considered ‘early’ before 59.5 years of age) but many charge a 10 per cent fee on top of the federal income and tax rates.

If you are looking to have greater access and flexibility with your money, a UK Self-Invested Personal Pension (SIPP) system may be the way to go. Along with the greater freedom and higher investment return rates, these can often come with higher risk as well, so again make sure you consider the financial implications before acting.

It may be possible to transfer a UK pension to the USA in certain circumstances, but likely will lead to penalties that many will consider too heavy. The continuation of up-rated UK pensions while living in the US, means that it might not be worth transferring your pension, across regardless of the potential benefits. The majority of financial advisors suggest using your British pension in the USA (or using a SIPP) and then claiming tax relief with the UK USA double tax treaty once you begin to draw your pension.

Once you’ve decided how you want to manage your money, the next step will be deciding how to move all your belongings over to the US. For how to move from the UK to the USA, check out our expat guide here, and get in touch with 1st Move International, the professional moving experts. Call now.

About 1st Move International

1st Move International are a specialist international moving and shipping company offering packing, shipping and insurance for shipping household goods and personal effects overseas. We have a global reach covering over 80 countries and 6500 worldwide destinations. You can get an international removals quote here or find more information on our international removals UK to USA service here.

Avatar for Mike Harvey
As the Managing Director of 1st Move International, Mike Harvey brings more than two decades of logistics expertise and three years of specialised experience in international relocations to his role. His comprehensive knowledge spans the intricacies of overseas shipping, secondary yet crucial areas such as visa application processes and immigration requirements, and the wider topic of moving abroad including topics such as comparative analyses of cost of living, healthcare and educational systems worldwide. This expertise allows 1st Move International to equip people with the information they need to not just move overseas, but to make informed decisions about whether, and where, to relocate.