How To Transfer Your Pension to a SIPP—A Comprehensive Guide for UK Expats

In this guide, we’ll discuss everything you should know about this pension scheme and outline its main benefits. We’ll also explain how you can transfer your pension to a SIPP and what costs you should be aware of before transferring.

What Is a SIPP?

A SIPP is a personal pension scheme suitable for both UK residents and non-residents. It’s an appealing option for UK expats because it offers more investment freedom than standard pension schemes, tax benefits, and the ability to effortlessly consolidate multiple pension pots into one.

For expats a self-invested personal pension can also be known as an International SIPP.

Can I Transfer My Pension to a SIPP?

In most cases, UK expats should have no trouble transferring their pensions to a SIPP, but their eligibility depends on their current pension scheme.

The UK has two main types of pension schemes:

1. Defined benefit pension (final salary pension): A traditional workplace pension where your income is based on your salary and the duration of employment at a company.
2. Defined contribution pension: A pension pot to which you and your employer contribute a specific amount or percentage of your salary. The pension provider invests this money in different assets, so the pension’s value fluctuates.

When it comes to transferring a final salary pension to a SIPP, here’s what to keep in mind:

1. If you’re in an “unfunded” public sector defined benefit scheme (like the Teachers’ Pension Scheme or the NHS Pension Scheme), you won’t be able to transfer.
2. By transferring to a SIPP, you’d be giving up a guaranteed income.
3. If the transfer value of your defined benefit pension is over £30,000, you’ll need to work with a pension transfer specialist who can explain the advantages and potential drawbacks of the transfer.

If you’re transferring a defined contribution pension scheme to a SIPP, here’s what to consider:

1. If your Defined Contribution (DC) pension includes special guarantees, such as a Guaranteed Annuity Rate (GAR)—commonly found in older pension schemes or certain investment options—you are required to seek financial advice if the value of these guarantees exceeds £30,000 before transferring your pension to a Self-Invested Personal Pension (SIPP). This ensures you fully understand the potential benefits you might lose and the implications of transferring.
2. You can choose between a cash or in-specie transfer:
   1. A cash transfer implies selling the investments from your DC pension and investing the money in a SIPP.
   2. An in-specie transfer involves transferring the investments from a DC pension to a SIPP, but this would require the SIPP to offer the same investments you have.

There are also limitations to the type of assets eligible for an in-specie transfer. For example, if you invested in a lifestyle fund with a target retirement date, an in-specie transfer may not be an option.

Why Should You Consult a Financial Adviser?

Besides the legal requirement, transferring your pension to a SIPP requires you to take over the responsibility of managing investments. If you don’t have the necessary experience, you could make poor decisions, resulting in money loss.

That’s why working with reputable pension transfer advisers is always recommended. They’ll help you prepare for the transfer and offer expert guidance on what assets you should invest in. Advisers can also take over investment management for you, acting in line with your wishes.

Why UK Expats Should Consider Transferring to a SIPP

Here are a few reasons why a SIPP may be a viable pension scheme for UK expats:

1. Consolidation of multiple pension pots.
2. More investment freedom.
3. Cost-efficiency.
4. Easier inheritance planning.
5. Better control over saving and withdrawing money.

Consolidation of Multiple Pension Pots

If you’ve built multiple pension pots during your employment, a SIPP lets you bring them into one scheme. Doing so allows you to have greater control of your pension benefits and keep track of them more easily. By consolidating your pots, you’ll likely save money as you won’t have to pay several management and platform fees.

More Investment Freedom

One of SIPP’s main advantages is that it gives you more investment freedom than standard personal pension schemes. The available investment options include:

• Shares and stocks in the UK or overseas.
• Listed and AIM securities.
• Investment trusts.
• Bonds.
• Cash.
• Exchange-traded funds (ETFs).
• Structured products and deposits.
• UK commercial property.

You have complete control over your investments and can make changes to align with your goals. Working with a financial adviser can provide valuable guidance to help manage your portfolio effectively and ensure it suits your objectives.

Keep in mind that SIPP providers can have different investment offers. If you’re interested in a specific type of investment, ensure the provider you choose offers it.

As profiting from investments requires expertise and experience, it’s recommended to work with a professional if you don’t have the necessary skills yourself. An expert financial adviser will help you choose and manage SIPP investments and grow your wealth in line with a holistic financial plan that matches your risk profile and retirement goals. The experienced investment team at Titan Wealth International can help you achieve your pension goals and ensure constant growth while prioritising your needs and financial security.

Cost-Efficiency

SIPPs permit only clean share classes, which don’t carry commissions paid to advisers. With SIPPs, the only cost is the annual management fee, making them a cost-efficient transfer option for UK expats.

Some Qualifying Recognised Overseas Pension Schemes (QROPS), for example, allow non-standard share classes, which may include hidden commissions. Unfortunately, some unethical advice firms have exploited this structure to receive additional fees at the expense of their clients. As a result, holding the same shares in a QROPS can cost you 2–5% more than holding them in a SIPP. These high costs are often a significant factor in choosing a SIPP instead.

If you would like us to review your QROPS for hidden fees or provide guidance on more cost-effective options, get in touch today for a no-obligation consultation.

Inheritance Planning

SIPPs are appealing to expats who want to plan ahead and ensure their spouse or other beneficiaries receive the entirety of their pension in case of their death.

If you have a defined benefit scheme and don’t transfer, your spouse will likely receive up to 50% of your pension after your death (in some cases, they can receive up to 66%). When it comes to your children, they’re eligible to receive up to 25% of your pension until the age of 18 (23 if they remain in full-time education).

If you transfer your pension benefits to a SIPP, your beneficiaries have three options for accessing your pension funds after your death:

1. Lump sum payment: They can choose a one-time payment of the entire pension’s value.
2. Annuity purchase: They may have a consistent income over time.
3. Flexi-access drawdown: This option allows beneficiaries to withdraw a certain portion of the pot while leaving the rest invested. Beneficiaries can decide whether to receive regular income from the pot or withdraw funds when needed.

Currently, if you pass away before the age of 75, your beneficiaries can receive your pension tax-free. If death occurs at or after the age of 75, beneficiaries are required to pay income tax on the pension at their marginal rate.

However, this is set to change in April 2027, as unused pension funds and death benefits will be included in the deceased’s estate for inheritance tax purposes. This means beneficiaries may face an inheritance tax charge in addition to any income tax liabilities. It’s important to review your estate planning strategy in light of these upcoming changes to ensure your beneficiaries are not subject to unexpected tax burdens.

More Control Over Saving and Withdrawing Money

If you transfer your pension to a SIPP, you can choose how much money you’ll contribute to your new scheme and how frequently. Most providers will allow you to adjust your contributions if your financial circumstances change. However, expats face specific restrictions regarding contributions:

• Annual allowance: The maximum you can contribute to a UK Defined Contribution pension (including both employer and personal contributions) in a tax year is capped at £60,000 or 100% of your UK earnings, whichever is lower.
• Expat restrictions: If you’re not earning UK income but remain a UK tax resident, you may still contribute up to the £60,000 limit and claim tax relief. However, if you’re no longer a UK tax resident, you’re generally limited to £3,600 gross per year (including employer contributions), and these contributions may not qualify for UK tax relief.
• Host country considerations: Non-UK tax residents should explore whether specific tax treaties between the UK and their host country provide relief or credits for pension contributions.

In your first tax year overseas, your contribution limits may differ based on your tax residency status:

• UK tax resident: Contributions up to £60,000 or 100% of UK earnings remain eligible for tax relief.
• Non-UK tax resident: Contributions are generally capped at £3,600 gross annually, without UK tax relief.

For future years, your status determines your limits:

• If you remain a UK tax resident: The £60,000 annual allowance (or 100% of UK earnings) applies.
• If you’re no longer a UK tax resident: The £3,600 gross annual limit continues, typically without tax relief.

Flexible Withdrawals

From the age of 55 (the normal minimum pension age, NMPA), you can begin withdrawing money from your pension pot. With a SIPP, you have several flexible withdrawal options:

1. Leave your pot untouched and access it later.
2. Take your entire pension at once, with up to 25% tax-free and the rest taxed at your marginal rate.
3. Buy a lifetime annuity for a guaranteed income for life or a fixed-term annuity for a set period, with the option for a lump sum at the end.
4. Opt for pension income drawdown, taking a portion of your pension as income while leaving the rest invested.
5. Take multiple lump sums, with 25% of each withdrawal tax-free.
   Combine different withdrawal strategies to suit your needs.

Tax-Free Lump Sum Allowance

The standard lump sum allowance (LSA) allows you to withdraw up to 25% of your pension pot tax-free, capped at £268,275 (frozen following the 2023 Lifetime Allowance changes). This limit applies regardless of the total size of your pension pot, but higher amounts may apply if you have a protected allowance under specific rules.

To ensure compliance with these regulations and to maximise the efficiency of your withdrawals, it’s recommended to work with a financial adviser who can provide tailored advice.

Should I Transfer My Pension to a SIPP?

Whether you should transfer your pension to a SIPP depends on several factors, such as:

• Your country of residence and its tax laws.
• Willingness to take financial risks.
• Your investment goals.
• Your planned lifestyle in retirement.
• Level of financial knowledge.
• Readiness to give up guaranteed benefits.
• The country you plan to retire in.

If you’re unsure about moving your pension to a SIPP for any of the listed reasons, consult an accredited pension transfer specialist. Experienced financial advisers at Titan Wealth International can outline the benefits and risks and objectively assess whether transferring your pension to a SIPP aligns with your retirement expectations and personal lifestyle goals.

How To Transfer a Pension to a SIPP

Transferring a pension to a SIPP typically involves the following stages:

The length of the transfer varies depending on the following factors:

• The complexity of your financial situation: The existence of multiple pension pots or ownership of pensions in more than one country can make your case more complicated.
• Your current provider: They can provide the necessary paperwork within a few days or weeks.
• Your decision-making process: Transferring to a SIPP isn’t a decision you should make lightly, so you may need some time to analyse the pros and cons.

Costs of Transferring a Pension to a SIPP

The following fees and charges make up the costs of transferring your pension to a SIPP:

Get a Complimentary Pension Review

Get expert guidance on your final salary pension transfer with our Complimentary Assessment. Here’s what you’ll receive:

• CETV analysis & pension tracing: We’ll retrieve and analyse your defined benefit CETVs and track any lost pensions.
• Pension transfer assessment report: A personalised report outlining the pros and cons of a transfer, including tax implications, long-term benefits, and our recommendations.
• Retirement planning: Comprehensive financial assessment covering property, investments, and cross-border considerations, helping to create a tailored retirement plan.
• Pension consolidation: Guidance on merging final salary, personal, or stakeholder pensions into one streamlined plan for easier management and reduced costs.
• Second opinion review: Have you already received advice? We offer a complimentary second opinion.