International SIPPs

 

What is an International SIPP? 

 

A Self-Invested Personal Pension (SIPP) is a pension plan that allows you to take complete control of where your contributions are invested. A SIPP usually provides access to a wide range of different investments, including:

 

  • Shares of individual companies, including those of companies that aren’t listed on stock markets
  • Unit trusts
  • Open-ended investment companies
  • Investment trusts
  • Exchange traded funds
  • Bonds
  • Gilts
  • Commercial property

 

An International SIPP is a version of the product designed specifically for non-UK residents. In many ways, an international SIPP is very similar to a standard SIPP, but one of the principal differences is that international SIPP investments can be held in different currencies. You might be taking a risk by having a pension in sterling if you intend to spend your retirement outside of the UK, should exchange rate fluctuations mean that you are suddenly faced with the prospect of retiring on a lower real-terms income in the local currency.

 

Who can have an international SIPP? 

 

An international SIPP might be appropriate for a wide range of individuals, including non-UK residents and foreign nationals residing in the UK. You can have an international SIPP if you are employed, self-employed or unemployed. If you have already retired, it is still possible to make contributions to this type of pension arrangement.

 

Transfers to an international SIPP 

 

It’s easy to transfer funds to an international SIPP from another pension arrangement, including UK schemes you may previously have been a member of. A transfer is not always the best course of action, so it may be best to seek professional financial advice, indeed if you have a final salary pension valued at £30,000 or more then it is a legal requirement to obtain professional advice before transferring. It may not be possible in any case to transfer funds to an international SIPP from some of the UK public sector pension schemes.

 

Withdrawing funds from an international SIPP 

 

As with most pension arrangements, you can withdraw the funds in your international SIPP from age 55 until age 75. You will have full flexibility as to how you access these monies – you can access the fund as lump sums, an income, or a combination of the two. Under the flexible drawdown option, anything you don’t withdraw remains invested. There is also the option of using your international SIPP to purchase an annuity, which provides a fixed income for life, but there is no obligation to do this.

 

Tax considerations 

 

If you aren’t resident in the UK for tax purposes at the time you make a contribution to the SIPP, then you won’t receive tax relief on that particular contribution.

 

However, if you are still paying UK tax, in spite of being resident overseas, then you can expect to receive tax relief on your contribution in the same way as you would with any UK-registered personal pension plan. In these circumstances, the contribution is made net of basic rate tax, so the Government adds 20p for every 80p you contribute. Higher rate taxpayers can then claim additional tax relief via their tax return.

 

The monies in the SIPP will grow free from income and capital gains tax.

 

When you access the funds in your SIPP, you can withdraw 25% of the fund as a tax-free lump sum. Withdrawals over and above this will be taxed as income at your highest rate of income tax. So, if you pay 40% tax on some of your income, all of your pension withdrawal would be taxed at 40%.

 

If you die prior to age 75, then your beneficiaries can access the fund as a lump sum or as an income stream free of UK income tax. If you die after age 75, the beneficiaries will pay income tax at their highest income tax rate, but there will usually be no inheritance tax liability in these circumstances.

 

International SIPPs are also subject to the UK’s lifetime allowance, which is £1,073,100 in the 2020/21 tax year. This applies to the total value of all your private and occupational pension arrangements. Any lump sum withdrawals in excess of the allowance are taxed at 55% and any income withdrawals in excess of the allowance are taxed at 25%.

 

Unless you intend to return to the UK in retirement, you should check what Dual Taxation Agreements apply between the UK and the country you live in.

 

Financial advice 

 

As mentioned above, if you are considering transferring funds from another pension arrangement into an international SIPP, then it could be a good idea to seek professional financial advice.

 

It can be beneficial in any case to consult a financial adviser before you take out an international SIPP. There is a huge range of investment options and not everyone will be comfortable choosing exactly where they wish to invest. A skilled financial adviser can explain the pros and cons of the various options and can identify investment areas that are in line with your risk profile, as some of the available investment options are higher risk.

 

Regular reviews with your adviser can also be important – at these reviews the adviser can monitor the performance of your investment and recommend any changes. Many people switch to lower risk investment strategies as they near retirement, knowing that they have much less time to make good on any losses they might suffer.

 

The fees on different international SIPPs can also vary greatly. An adviser can help you identify which are the best options in this respect.

 

What regulatory protection do I enjoy? 

 

Any UK-based firm offering an international SIPP must be regulated by the Financial Conduct Authority. If your provider was to fail, then your investment is protected by the Financial Services Compensation Scheme.

 

International SIPPs versus QROPS 

 

A Qualifying Recognised Overseas Pension Scheme (QROPS) is another retirement savings option available to you if you reside overseas. A QROPS may be more suitable for those able to accumulate a large pension pot, as the UK lifetime allowance doesn’t apply on withdrawals. Both SIPPs and QROPS offer you an extensive choice as to where to invest.

 

Contact us today for a fee-free initial discussion to best understand how an International SIPP could benefit you.

  • We’re UK qualified Chartered Financial Planners
  • We don’t take any commission from any provider we use
  • We use the very best investment structures and pension providers available
  • No lock ins / tie ins – maximum flexibility on all SIPP providers that we use

 

We look forward to hearing from you.

 

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About AES International

AES International advises expatriate clients worldwide on all financial planning matters including retirement planning, offshore bank accounts, savings and investment, insurance, pension transfers and generating income, from wealth accumulated, to support retirement.

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