Gerard Associates Ltd
Gerard Associates Ltd
Global Wealth Managers and Independent Financial Advisers
QropsOverseas Pension TransfersQrops ChargesUK PensionsQrops FAQ
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Transfer to US 401k Pension or Offshore Pension Plan.

Gerard Associates Ltd. Financial Advisory Services does not provide advice on any products from a USA jurisdiction and nothing contained in this briefing should be construed as such. We make every effort to ensure the accuracy of the information but cannot be held responsible for any liability arising.

It is essential that all clients seek tax and financial advice specific to their own personal circumstances with the relevant tax professional of the jurisdiction(s) in which you are liable or could be liable to tax.

This has been prepared based on our understanding of US 401K Pensions with Fidelity. However, these are subject to change, and may result in tax consequences different from those detailed below.
We cannot accept responsibility for its interpretation, accuracy or any future changes to law.

One overriding issues with the transfer of Personal Pension benefits is the flexibility to take capital and income and the control various jurisdictions place on the fund and benefits.

Most people fear changes in UK legislation but for Personal Pensions the regulatory and investor protection regime is comprehensive.

The most recent change in UK legislation for Pensions has been accepted positively but the imposition of withholding tax on dividends is the first tax we have seen on UK Pension funds. They can no longer be denoted as tax free.

US 401k Pension

At present US401k Pensions with a few providers represent the main schemes to which QROPS has been granted and can facilitate a transfer acceptance.

The US system of Personal Pensions is not dramatically different to elsewhere. You place money into a designated account and receive a tax enhancement on the proviso you use the accumulated fund to provide income in retirement. Thus relieving the state of some financial burden.

As with many Pensions the US system has controls

• on what age you can start taking benefits,
• the level of benefits
• and an age, about 701/2 years old, when you must take benefits in the form of an annuity.

Of course the value of the annuity depends on how long you live. Live to 100 years and they probably represent great value but live to 71 years and significant capital may be lost.

The tax on benefits are treated as income and the system of state and federal taxes means it can be dependent on where you live as to how much tax you pay. This will need evaluating with US professional advisers and/or the Inland Revenue Service (IRS) in the US.

The US 401k Pension does have arrangements where the fund or a proportion of the fund can be lent to the member. These though are only available in circumstances of extreme financial strain like mortgage arrears leading to repossession and the paying of medical bills.

For the majority these rules are acceptable.

Alternative Offshore Pension

For those with substantial pension funds and those that may not be totally dependent on the income the pension could generate, the imposition of having to purchase an annuity may be avoidable.

Offshore Pension Plans typically in the Channel Islands and Isle of Man have a unique planning advantage. Whilst the Pension still benefits from its near tax free status (withholding tax on dividends still cannot be reclaimed) the rules on taking benefits and how the funds are invested are more favourable. Add the fact that there is no compulsion to buy an annuity at any age and the financial planning opportunities are greater.

By avoiding offshore schemes with high up front charges and exit penalties, if the jurisdiction in which you reside has changes in legislation which create a more favourable Pension regime for your funds, a transfer is easily facilitated from the offshore Pension.

Currency fluctuations can place a significant dent in the fund and income generated from it, you need to consider the effects but offshore pensions can be denominated in Sterling, Euros or US Dollars. Income and loans will be in the currency in which the funds are held.

Offshore Pensions can lend up to 40% of scheme assets for any purpose with the resulting repayments attracting interest. Interest does not have to be paid. In this case a tax certificate showing a benefit will be produced and should be declared to the relevant tax authority of residence.

Death Benefits

On taking an annuity from a US 401k whilst it may be possible to include some capital guarantees, on death the fund reverts to the annuity provider.

The offshore Pension is written under a master trust arrangement where there is no liability to UK Inheritance tax. The remaining fund will pass to your intended beneficiaries. Any liability to death taxes in the place of residence should be sought from the relevant jurisdictions tax advisers.

Life Insurance