This communication is for informational purposes only and is not intended to constitute, and should not be construed as investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, it is subject to change and we are not responsible for any errors or omissions.
One of the challenges facing many British expats is how to start and build a pension. Living overseas can make it more difficult to access many of the benefits available to those living in the UK (e.g. tax relief on pension contributions, which becomes subject to the “Five Year Rule” once someone becomes a non-resident).
A self-invested personal pension (SIPP) can be a good option for some UK expats living in Spain and other countries. If you no longer live in the UK, then an “international SIPP” is a specific type of pension which tries to cater to non-resident needs. Below, our financial advisers at Scottsdale explain how international SIPPs work and how they can apply to a British expat’s wider retirement plan.
If you want to discuss your financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
+34 966 460 407
What is an international SIPP?
A SIPP is a type of personal pension. A personal pension is a scheme which an individual opens independently of an employer (which might offer its own workplace pension). The main difference between a SIPP and a personal pension is that the former usually allows for more control and flexibility over the scheme member’s investment options.
For instance, a SIPP might allow members to invest in collective investments such as open-ended investment companies (OEICs) and unit trusts. A “standard” personal pension may limit investment options to more traditional assets like publicly traded shares and gilts.
An international SIPP, by contrast, is specifically geared towards non-UK residents. Similar to a UK SIPP, this is still regulated by the Financial Conduct Authority (FCA). However, a standard SIPP is not typically “built” for non-UK residents (whom they tend to regard as too far outside of their comfort zone).
An international SIPP replicates many of the benefits of a standard SIPP, but specifically for niche markets e.g., non-UK residents and British expats. For instance, an international SIPP allows members to invest in different currencies – e.g. Euros, for expats living in Spain.
How is this different from a QROPS?
You may have heard of a type of pension called the “qualifying recognised overseas pension scheme” (QROPS, although it is now officially called ROPS by HMRC – lots of acronyms!). This is different from an international SIPP and UK expats in Spain need to understand the key similarities and differences when weighing up their pension options.
Firstly, both are private pensions which an individual can transfer their UK pension(s) to. However, an international SIPP is still based in the UK. A ROPS is a scheme located in another country, thus sitting outside of the UK’s tax regime.
The suitability of either option really depends on the specific goals, needs and circumstances of each client. For British expats living in Spain, international SIPPS and ROPS operate in similar ways. As such, the judgment call can come down to cost considerations.
An international SIPP tends to be simpler in this respect. However, expats nearing the lifetime allowance with their pensions (£1.073 million) might want to consider a ROPS because they do not necessarily need to test against the lifetime allowance again after the pension transfer.
Do I need an international SIPP?
Once again, we must stress that there is no “correct” answer to this. It all depends on your specific situation and objectives.
With an international SIPP, there is the security of knowing that the scheme is regulated by the FCA and it is generally less expensive than a ROPS. However, if you have already built up a lot of pension wealth and are concerned about a future tax bill, a ROPS might be worth exploring with a financial adviser.
It is important to note that an international SIPP is broadly more “portable” than a ROPS. With a ROPS, the individual transfers a UK pension to an overseas scheme. This pension will then be based in a new country. If you later move to a different country, it can be complicated and expensive to transfer the pension again.
By contrast, an international SIPP remains based in the UK and an expat could keep contributing to it from a wide range of jurisdictions.
Navigating the world of international pensions is not easy for many expats. The rules are complex and subject to change. It can be tempting to delay thinking about the subject because the information is too confusing.
Yet you will thank yourself later if you take the time to inform yourself today. Remember, the more time you have ahead of you, the more your pension could potentially grow using the power of compound interest. With careful management and planning, this could result in a more comfortable lifestyle later in retirement.
If you are interested in discussing your own financial plan or inheritance tax strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
+34 966 460 407