UK pension tips?

I have just accepted a new job here in the UK that will contribute 6% of my salary into a private pension of my choice.  Are there any helpful hints/ guidelines I should consider when setting up a UK private pension with regards to US taxes?  I am in my mid-forties and have an IRA in the USA that I had with my old job before I moved to the UK.  I have ILR and plan to apply for UK citizenship this year.  Still not sure which country in which I am going to retire, but am hoping to keep things as simple as possible tax-wise by planning in advance.  Thanks for any "unofficial" advice!

I have 2 UK pensions from when I lived in the UK and it really is no problem.  I am currently receiving a monthly payout from one of them, and have been for the last few years. I'll start drawing the 2nd pension in 4 years, by which time I may well be resident in the UK.

While I am resident in the USA I pay no UK tax on my UK pension, but declare it on a substitute 1099-R and pay US taxes.  When I received my first payment, UK taxes were withheld and HMRC wrote to me.  I was easily able to get a certificate from the IRS stating that I was a US taxpayer, and I filed that certificate with HMRC and they refunded the previous tax paid and stopped all further withholding.

Yes, by all means, consider setting up the pension.

BUT, understand exactly what type of pension it is, and what are the information filing requirements for the IRS and Treasury for that particular type of pension contribution. The rules vary according to the type of pension.

It may require some extensive reading to ascertain the requirements, and in the end, you may well feel compelled to seek professional advice when filing your first US returns after starting the pension contributions.

It's unfortunate that this is the situation for someone who wants to provide for their future, but with US citizenship based taxation, it is what it is. Try not to let the US requirements for those contributing to a UK pension put you off.

Your brief description "6% of my salary into a private pension of my choice"  would indicate that you need to be aware of reporting requirements. There have been numerous threads on this subject. Have a search through past threads to get an idea of where to start, and what you may be up against for the particular type of pension you select.

 

one sensible suggestion that has been made in this forum in the past, is to get your new employer to pay for you to get professional tax advice as part of your signing on pkg.

Thanks durhamlad, theOAP and marty for your suggestions

Your brief description "6% of my salary into a private pension of my choice"  would indicate that you need to be aware of reporting requirements. There have been numerous threads on this subject. Have a search through past threads to get an idea of where to start, and what you may be up against for the particular type of pension you select.

 

Dear theOAP: Not trying to be lazy here, but if you could give me a link to just one thread as a starting point, I'd so appreciate it as I am not even sure what in the forum I should be looking for with regards to types of pensions? Thanks if you have time to do so

I do have a tax advisor in the USA that is affiliated with a UK tax firm as well, so I will certainly ask her advice as well, but I truly value the knowledge base here on the forum so am trying to get information from everywhere before I make the commitment to own two pensions in two countries!

Thanks again everyone!

Pensions are a complex subject, and to be honest, no one can really give you any substantial advice without knowing exactly the details of the pension plans you are considering. I take from your comment "a.. pension of my choice", this will not be an employer defined benefit, final salary pension.

This is the latest thread discussing pensions (although it starts out by discussing FBAR). Nun does supply some interesting links which delve into the complexities of one type of pension. The OP is resident in the US, but whether you're in the UK or the US makes no difference if you're a US Person. The IRS views any UK pension as a 'foreign' pension.

http://talk.uk-yankee.com/index.php?topic=78570.0
Again, this is only one particular type of UK pension, and each have varying considerations.

Here's another general discussion. And as a general warning, I would suggest you read any discussion concerning pensions as terms for further research, and not as fact.
http://talk.uk-yankee.com/index.php?topic=75613.0

Make sure your tax adviser is conversant with PFICs, foreign trusts, FBAR, Form 8938, Form 8833, and the US/UK double tax treaty as the applicability of each must be considered. Having two pensions from two different countries is not an unusual occurrence for expats. The pensions themselves function (and pay out) well. It's only the IRS (and US Treasury) reporting for a US Person that is the challenge.

You may want to find the pension(s) you feel suits your situation best and then run those by your tax adviser for comments / potential problems. Also, be aware that professional tax advisers themselves don't always agree on the 'correct' method of reporting, given the various pension details.

Thanks so much to theOAP, this is super helpful and a great starting point for me

One other thing to consider is the appalling drawback of UK pensions as opposed to US IRA/401(k) plans.

In the UK, unless you can show you have a hefty income stream upon retirement, you will be forced to buy an annuity with the bulk of your pension upon retirement.  This is the nanny state at its worst.  As everyone knows annuities are an awful buy.  Payout rates are at historic lows, and whatever you used to purchase the annuity cannot be passed on to heirs upon your death.

In addition successive goverments have periodically raided occupational pensions and will most likely continue to do so.

As a result I recommend putting a minimum amount into these pensions.  I work for a UK company and only put in the minimum required to trigger a matching company contribution.

You're better off building your own investment portfolio for your retirement in my opinion.  Yes it won't build in a tax advantaged way necessarily (there other ways to do this).  But the UK rules regarding pensions offset the benefits of their tax advantaged growth in many ways.

Paul