6 thoughts on “UK Employer Pension (Account Options)

  1. Hi, would you be able to expand this to include the interactions with defined benefit plans? Most of this seems to apply only to defined contribution plans, unless I’m not understanding it correctly.

    Thanks for all your hard work documenting this! It helps immensely.

    Like

    1. Yes, my focus has been on defined contribution plans – mostly because that’s what I have, so I’m not terribly familiar with the intricacies of defined benefit. It’s on my list to expand to defined benefit at some point, but the basic point is the same – they’re fully recognized by the US/UK tax treaty and almost certainly your first stop for investing. DB also is treated favourably from a Lifetime Allowance perspective.

      Like

      1. The other question you often get about about DB pensions is if and how do you report them on your FBAR or form 8938. From what I can tell, if you meet the thresholds due to other foreign accounts, or there is an known cash value in an attached AVC (Additional Voluntary Contribution) account that exceeds the threshold, then yes you should report it. Whilst you should get an annual statement from the scheme, it usually will only tell you what pension you might expect to receive when you reach retirement age, not what the total cash value is now. If you make additional contributions to the scheme it might tell you the value of this portion of the pension. So for the FBAR (and 8938) you can just report the value as zero or “max value unknown” (on the FBAR). If you start drawing the pension in retirement then you can report how much you withdraw from the pension in the US tax year. Whilst in the scheme and before retirement there shouldn’t be anything else you need to report on your US tax return (no worry about PFICs for instance). You will still be taxed on withdrawals in retirement, including most likely any “tax free” lump sum. Government pensions (e.g. military, civil service, NHS) pensions have a special article in the treaty, but I think it’s cancelled out if you are a dual US/UK citizen. However, for instance if you are a US citizen only living in the UK then only the US taxes a US government pension (not the UK). But if you became a UK citizen then the UK will also tax it, then you’ll be back to using foreign tax credits. Obviously you can no longer use the Foreign Earned Income Exclusion in retirement, because the pension is not classed as “earned” – despite the fact it’s basically delayed compensation.

        Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: