Taxation of non-U.S. Pensions
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In an increasingly global economy, workers are experiencing unprecedented mobility, American citizens living abroad often participate in foreign pension plans, which generally have beneficial tax treatment under the local country of residence law. Furthermore, participation might even be mandatory, and employers often make valuable pension contributions on behalf of their employees. However, even in light of all these benefits, American taxpayers must remain aware that not all foreign pension plans receive favourable tax treatment under U.S. tax laws and that participation could be detrimental to long-term financial planning goals, As the penalties for failure to report can prove to be significant. These groups of individuals will all have one issue in common.
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What to do with their foreign pension benefits
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To avoid retirement planning pitfalls, U.S. taxpayers with overseas pensions must carefully examine their pension plans under relevant U.S. tax laws and bilateral tax treaties. Foreign pensions are an area that American taxpayers can no longer ignore as the Foreign Account Tax Compliance Act (FATCA) and increased cross-border tax compliance suggests that the IRS may pull out the magnifying glass and take a closer look at these assets going forward (especially so-called “offshore pension schemes”).
Many countries allow workers to defer pre-tax dollars into retirement accounts that then accumulate tax-free until retirement. These systems of tax-deferred savings and investment exist everywhere for the same reasons they exist in the United States: governments want to encourage workers to accumulate private savings to support retirement expenditures without exclusive reliance on state pension systems.
Foreign pension plans commonly encountered by Americans abroad include:
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Swiss Pillar Pension System
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UK Employer-Sponsored Pension Schemes and SIPPs
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UK Pension Transfers for US Connected Persons
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As times have evolved so have our working conditions, thus more and more people are becoming transient, and this gives rise to many pension planning hurdles. UK pension transfers to the U.S. can be complex and tedious, as it stands the IRS does not allow for the Tax-Free transfer of foreign pensions into the U.S. Domestic equivalent. For US connected persons this may give rise to the below questions:
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How can I access my UK pension in the U.S?
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When will my UK pension be paid to me?
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What benefits can I take from my UK pension?
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How will my UK pension be taxed in the UK or/and the U.S?
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What forms need to be filed with the IRS with regard to my UK pension?
UK to U.S. pension transfer rules have changed in recent years. Many US citizens receiving a UK pension and living in the U.S. aren’t sure if they should be declaring their UK pensions and annual gains to the IRS, or if they’ll have to pay both UK and US tax on their income. Similarly, many of us are unaware of Inheritance Tax implications if we live overseas and have a UK pension.
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What are your options?
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Leave your UK pension invested in your existing pension providers scheme
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Transfer your UK pension to another pension scheme in the UK such as a UK SIPP
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Transfer your UK pension to the U.S. using an International Self-Invested Personal Pension (SIPP)
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Transfer your UK pension to the U.S. using a Qualifying Recognised Overseas Pension Scheme (QROPS U.S.)
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MWC Group have a team of advisors, with specialized knowledge, competencies and skillsets who can answer all questions and design a roadmap to navigate the complexities involved in transferring and ultimately protecting your pension plans. We can advise on the best route to help you achieve your financial goals and objectives.