The Downfalls:

When the British Government are creating ideas of how to raise extra revenue, pensions will be somewhere in the top one of that list. Pension legislation was never simple to start with. Ironically this makes it more appealing for the chancellor to complicate further rather than to simplify. Adjusting pension rules to raise revenue can become easier when existing rules can be misunderstood to start with. Keeping on top of these changes is especially tricky when you aren’t living in the UK anymore. It becomes even more tricky when you are trying to figure out how your US residency affects your UK pension.

The Good News:

The good news is that not all the changes are negative.  One of the biggest changes in recent times is the increased flexibility that you now have to access your UK pension. The tax treatment of the death benefits for certain types of UK pensions have also improved. However, the extent of that flexibility available to you very much depends on your specific pension plan. Not all options may be available with the plan you hold, which is particularly the case for older pension plans.

So, what are the options?

There are however quite a few choices to choose from if greater flexibility is required. It won’t be the shortage of options that causes you an issue, it will be your US residency. Most pension providers in the UK choose not to work with US residents. But not all.  Those that are willing to work with US residents create a very useful financial planning tool. The options available to US residents range from simple cost-effective pensions with full flexibility, to more sophisticated pensions that can be invested is US Dollars and paid out in US Dollars. This can help to mitigate the risk of fluctuating exchange rates.

The next steps…

Whether your objectives reviewing the costs and investments of your pension, or accessing a fully flexible drawdown plan, there are choices available for US residents. This is something that we regularly help clients with. It is worth bearing in mind that having this increased flexibility may not be necessary for everyone. However, gaining an understanding of what your pension plan provides, against your objectives is useful. If you have pensions in both the UK and the US it is important to plan your income distributions tax efficiently. But your current and future tax residence and domicile must be considered too. This will not only affect immediate tax, but also tax be owed upon death if there are funds remaining.

If you would like to find out more or discuss this in more detail, please contact Cross Border Financial Planning.