International SIPP – what is it and is it a good idea?

International SIPP – what is it and is it a good idea? That will be the topic of today’s article.

Nothing written here should be considered as legal, financial, tax or any other kind of advice.

For any questions, or if you are looking to invest as an expat, you can contact me using this form, or via the WhatsApp function below.

Introduction

We all know retirement planning is difficult, but this is something we all have to face as we expect to live longer and we all try to shell out our savings to ensure the best quality of life in retirement.

Pensions can be especially problematic if you live outside the UK, so you have local currency in mind or have individual assets that you want to combine into your retirement scheme to maximize the tax breaks available to you.

Getting the best advice is critical, and SIPP (Individual Personal Pension) International may be the answer you need. However, you will naturally want to make sure you are using the best international SIPP protocol.

Personal pensions were introduced by the UK government in the mid-1980s to encourage people to save for retirement. Most personal retirement plans were offered by insurance companies.

Although such schemes are well structured, plan holders were often limited to a small pool of funds managed by the investment managers of insurance companies. The modern SIPP, or SIPP International, offers a more flexible type of personal pension, thanks to which plan holders can invest in a much wider range of investments.

SIPPs are an extension of the UK’s personal retirement benefit system. There are several differences between the UK and International SIPPs. The structure is similar in that both pension plans are regulated by the UK Financial Conduct Authority.

The International SIPP was originally designed for non-UK residents wishing to maintain their retirement assets in the UK rather than transitioning to a retirement solution overseas. It is also used by foreign nationals residing in the UK to provide a wide range of investment opportunities and flexible retirement options.

International SIPPs are specifically designed for individuals who want to manage and maintain control over their retirement investments and who want flexible access to their retirement money.

As an international SIPP holder, you can make adjustments, adjustments, change your investments/currencies at any time – potentially moving from high risk to low risk, or vice versa, from capital growth to income – depending on your circumstances. This allows you to make the most of the benefits available and increase your retirement income.

What makes the international SIPP different from the UK?

 There is a lot of controversy over whether International SIPPs are really anything other than a cleverly packaged UK-based SIPP with a bit of foreign marketing thrown in. To put it bluntly, there are very few differences between SIPP International and British SIPP. In fact, they are technically identical.

The main difference is that an international SIPP is sold to non-UK residents and often allows you to hold assets and other investments in other currencies, while maintaining the confidence that the pension is regulated within the UK (FCA), therefore subject to strict financial rules. This gives many investors more peace of mind as the UK is recognized by many as the “gold standard” regulator.

Beware of unscrupulous sellers trying to sell you expensive products that don’t have much of an edge over similar UK SIPPs. Sometimes the word “international” is added simply to make expatriates think they are getting something radically different from the standard UK SIPP and some kind of special deal when in reality the product they are selling is just a repackaged UK SIPP.

As with any UK pension transfer transaction, you will be advised to ensure that your consultant is appropriately qualified (preferably certified) and properly regulated (by a tight regulator such as the FCA) before proceeding.

SIPPs are self-investing retirement plans specifically designed for non-UK residents. They offer clients a wide range of investment opportunities and are the preferred option for anyone living outside the EEA and looking to transfer/consolidate their pensions in the UK.

How do international SIPPs work?

International Self-Investment Personal Pensions (iSIPP) are regulated by the UK Financial Conduct Authority. They can be created by UK citizens residing overseas to manage UK retirement benefits. International SIPP can provide regular or variable income and there is no obligation to purchase an annuity.

They provide more choice and flexibility in terms of investment, tax incentives, and currency choices. Where you have your primary home will determine the tax treatment of contributions to the pension scheme.

SIPPs were created to fill a gap in the UK retirement transfer market that Qualified Recognized Overseas Pension Schemes (QROPS) could not meet. Providers have modified their systems so that clients can express their investments not in pounds sterling, but in additional currencies. The key requirement was that international SIPPs must match the currency the person earns or will ultimately spend on retirement.

International consultants are always better suited to address local tax issues that need to be considered. In some cases, such as the consequences of double taxation treaties and general tax rates, this advice will be offered as part of a financial planning package. In other more complex cases, an international consultant will be able to refer expats to local and/or international tax consultants with the appropriate qualifications.

Likewise, international SIPP providers are usually better versed in the financial planning and taxation of expats. Therefore, they tend to offer products and services that reflect this difference.

How to transfer the pension to iSIPP?

Transferring Pensions to SIPP Before transferring a pension to iSIPP, you need to do thorough research. Not all SIPP schemes accept retirement transfers, so it is very important that you seek expert advice on retirement transfers. If your pension basket is valued at more than £ 30,000, the government stipulates that you MUST seek advice from a regulated pension advisor.

You will need to request a cash transfer amount or CETV from your current pension plan provider. You should also find out what benefits you will lose if you exit your current pension scheme. These facts can help you determine if transferring your pension to SIPP is appropriate for your individual circumstances.

The process of transfer can be complex and lengthy and can take up to several months. If your pension is eligible for a transfer, your pension advisor will be able to manage the transaction and ensure that you are fully aware of the implications of the transfer.

What are the pros of international SIPPs?

International SIPP is a suitable retirement plan for those retiring abroad. With a much larger number of products on offer, this form of SIPP offers more control over where your retirement money is invested. Key features include:

Flexible investment choices

International SIPPs offer a wider range of investment funds, more globally oriented. This contrasts with the domestic SIPPs, where the selection of funds is more limited to the UK and is also nominated in Pounds Sterling.

Consolidation of pensions in iSIPP

The SIPP is an ideal way to consolidate the various personal pensions that people accumulate over the course of their working life. This consolidation reduces administrative complexity later on. This is true for both UK and international SIPPs, although perhaps more importantly for expats.

What tax incentives does iSIPP provide?

International SIPPs are based in the UK and are eligible for tax benefits in the same way as UK SIPPs. This means that if someone transfers to an international SIPP while abroad and then returns to the UK for a short time or permanently, regular pension contributions can be made either by the individual or by the employer.

*iSIPP rules

Portability

If desired, your SIPP can be transferred to another tariff plan. Likewise, different types of retirement plans, such as defined benefit plans, can be transferred into your SIPP. If you have lived abroad and have QROPS, it can also be transferred to SIPP if and when you decide to return to the UK.

Lifetime Allowance (LTA)

Lifetime Benefit is the maximum amount of your pension up to 25% of UK tax. This tax is currently levied on excess amounts in excess of £ 1,073,100 on incentives crystallization. There are strategies that can help reduce tax liabilities, including applying for personal or fixed protection. Keep in mind, that these options cannot be available for a long time. For those with funds approaching the LTA limit, it is important to consider options as soon as possible.

Income options and tax regime

25% of the SIPP can be withdrawn as a tax deductible pension payment (PCLS) if you are a UK resident. The residual fund will then provide income that will be taxed according to your status at the time of retirement.

The Pension Freedoms Act was passed in the UK in 2105. People can now use their retirement funds under flexible access rules at any income level. It should be noted that any money used will be taxed as income at your maximum marginal rate after the PCLS is spent. You can choose a combination of income and PCLS. It is important to make sure that you are fully aware of the tax implications in your country of residence before receiving your pension.

SIPP holders can start receiving benefits anytime between the ages of 55 and 75. Any residual fund can be donated to tax your beneficiaries after your death before age 75. After that, they will pay tax at the marginal income tax rate.

What are the cons of international SIPPs?

While Self-Guided Personal Pensions (SIPPs) offer a flexible and tax-efficient way to accumulate retirement funds and supplement government pensions, policyholders should be aware of the risks involved in investing their money in the stock market. It is recommended to seek qualified help along the way.

Administration

Very few people work for the same company throughout their careers. The impact on retirement planning is the gradual fragmentation of pensions as people choose different retirement plans from the different employers they work for. This complicates administration, as people have to deal with different providers for both accumulating funds and paying benefits. This problem can be solved by combining all pensions into one convenient alternative: international SIPP.

Currency

Expats often keep a series of sterling-invested SIPPs and personal pensions. This can be a risky thing for those people who are not retiring in the UK. We have witnessed this exposure at various times in recent years as the pound has been under pressure and depreciated. A more flexible approach is available where the SIPP holder can either switch to the currency they will eventually spend upon retirement, or create a natural hedge by diversifying foreign exchange reserves.

Investment strategy SIPP Investments When accumulating retirement funds, it is important to analyze and be prepared to change your investment strategy. If the markets seem to be overpriced, you may want to consider mitigating your risks and protecting your funds from potential dips. Your risk profile is likely to change over time. No one wants to face a sudden market correction just before retirement with a portfolio invested in high-risk sectors. Solutions include switching to a lower risk area to protect the capital value of your fund or investing in “lifestyle” funds that do this automatically when you approach retirement.

Who is international SIPP suitable for?

The rule of thumb is that most expats can open an international SIPP, whether they are employed, self-employed, unemployed, or retired. It is important to note that where you have your main home determines the tax treatment of contributions to the scheme. If you are:

As an expat who is still a UK taxpayer, you will receive a pension contribution discount on money set aside for retirement.

As a tax resident elsewhere, you can still have a SIPP, but you will not be taxed on your contributions.

But importantly, in both of the above scenarios, you can get a benefit (drawdown) in any country, but it is important to check which Double Taxation Treaties (DTAs) have been concluded with the UK and the country of your residence with your financial advisor.

If you are an expatriate who eventually plans to retire to the UK, then international SIPP may be suitable for you also during your stay abroad and when you eventually return. If, however, you are planning to retire abroad, the SIPP may not be the most suitable retirement solution for you, depending on the double taxation treaties (DTAs) in the country you live in and your retirement goals, QROPS may be more suitable in this country. certain circumstances in which you want to protect yourself from life support problems. Please see our QROPS section below for more information.

International SIPP vs QROPS

Both the international SIPP and QROPS programs share similar characteristics, allowing people to be more flexible in managing their existing UK pensions. In terms of suitability, QROPS is usually more suitable for those with a larger pension basket. QROPS can also help protect against future tax liabilities for those approaching UK Lifetime Benefit (currently £ 1,055,000). You also need to consider how the pension transfer will be taxed if you live outside of Europe.

Like the international SIPP, the QROPS (Corresponding Recognized Overseas Pension Scheme) is for expats with existing UK pension entitlements. However, the main difference is that QROPS are usually suitable for you if you have a large retirement basket (i.e. close to the lifetime benefit, which is currently £ 1,073.00 for 2020/2021). Because QROPS can help mitigate future tax liabilities for excess surcharge when you come for

benefits, because QROPS does not have a lifelong benefit limit compared to a UK pension like SIPP.

The UK budget for 2017 also made a number of changes for QROPS, especially for expats living outside the EEA, where international SIPP would be the most sensible option.

Transfers to QROPS requested on or after 9 March 2017 are taxed at 25% if:

  • QROPS is located in the EEA and the member also resides in the EEA country.
  • QROPS and the participant are located in the same country or territory. This is a limited, if negligible, market share.
  • QROPS is an employer-sponsored professional program, an overseas government employee retirement scheme, or an internationally established retirement scheme.

To summarize, this means that an international SIPP is often the best solution if you live outside of Europe, even if your UK pension is above the 25% overseas tax lifetime benefit limit. Even if you live in Europe, if your UK pension is below or below the lifetime benefit limit, QROPS can be a useful tax planning tool in this scenario.

Investment options – which is best for you?

It really depends on your own unique financial circumstances, as each of us is different and the investment option that suits your work colleague or neighbor may not be the best investment option for you.

The type of investment that is most suitable for you is influenced not only by your financial circumstances, but also by your attitude to risk, future priorities, and so on. This is why it is important to seek advice from an independent financial advisor specializing in the financial markets of foreign nationals.

Affordable investment

The range of investments available for International SIPP is as follows:

  • Cash and deposits
  • Exchange commodities
  • Fixed-rate securities, including government and corporate bonds
  • Shares listed on a recognized stock exchange
  • Regulated collective investment schemes, including mutual trusts, OEICs (public investment companies), mutual funds, SICAVs, and investment trusts.
  • Discretionary fund management agreements
  • Physical Gold Ingot
  • Real estate investment funds (REITS)
  • National savings funds
  • Alternative investments.
  • Commercial property

Care must be taken when creating a portfolio. Risk exposure may change as conditions change. Regular reviews and monitoring are essential to ensure that your investments always accurately reflect your personal situation and financial goals.

“International” SIPPS, currency fluctuations and the need of a financial advisor

If you are an expat and want to earn retirement income from your SIPP, your funds will be subject to currency fluctuations if you decide to switch from the pound sterling to an alternative currency. It’s great if your chosen currency is doing well against the pound, but not so good if the pound sterling rallies in international markets.

If you have any overseas retirement plans, you should consider the potential fluctuations in any investment (and currencies) you make in your SIPP. If the security of your retirement is important to you, proceed with caution and consider using your advisor’s cash flow modeling service to chart a more reliable future course for your future retirement income.

A good advisor will always come up with a range of tried and tested options for your retirement investment and recommend which one is best for your specific circumstances.

Better yet, a good UK consultant with international experience. He or she must guide you through the minefield of international “fee-only” regulation, without taking a commission from suppliers he or she may recommend.

Take independent advice and make sure you see all the numbers ahead of time – especially all costs, commissions, and fees – so you can compare them to other products that may be more appropriate for your needs.

To sum up

To transfer your pension to SIPP, or to choose the best option of an investment for your international SIPP – you will need the help of a financial advisor. As an expat that will be an unavoidable point. Of course, you can do everything on your own, but the confidence a financial advisor gives you cannot replace anything.

As with financial planning, it’s important to understand the meaning of each individual element of your plan and make sure everything works in context. Your financial advisor must be experienced and qualified enough to help.

International SIPP is a good option for many expats, non-UK residents, it will give you a chance for a better future and good conditions to ensure your retirement years.

Pained by financial indecision? Want to invest with Adam?

Financial Planner - Adam Fayed

Adam is an internationally recognized author on financial matters, with over 281.8 million answers views on Quora.com and a widely sold book on Amazon

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