Pensions - UK/US

I understand that UK pensions basically allow you to receive 25% upon retirement and the rest of your corpus/basis is basically kept in the pension unlike in the US where you can draw down your original contributions.  I am trying to figure out how to do a US pension and get a deduction for the contributions while in the UK.  Seems like we are largely restricted to pensions we were a member of prior to residing in the UK.  Problem is that I came to the UK as an employee but am now self employed so no longer can contribute to the old plan.

I understand from (very good) prior posts here that contributions to US pensions are largely not smart as it only increases your foreign tax credit carryforward.  Thus, need to contribute to a US plan so not subject to 25% restriction but it must be deductible in the UK or most benefit is lost (some benefit from deferral of tax on income).

Many thanks and cheers

I understand that UK pensions basically allow you to receive 25% upon retirement and the rest of your corpus/basis is basically kept in the pension unlike in the US where you can draw down your original contributions. 

Not exactly true. You can take up to 25%  as a lump sum (UK) tax-free at age 55 or later. (I don't know how the US would tax this.) You can either convert the rest to an annuity, which will pay you a yearly income for life, or draw down on the rest if you have a very large pension fund (e.g. pension fund of over £100k). There are limits to how much you can draw down each year, based on size of fund and life expectancy. Options change again at age 75. You can't take out money from your pension till you reach 55 though.

Hi,

Can you tell me more about this draw down information?

I had always assumed that all you could do with your pension fund was to buy an annuity.  For this reason I've been considering opting out entirely of pension schemes here in the UK, as annuities are one of the worst investments you can make.  Why give all your money over to an insurance company when you can be investing it!

Anyway, if you can truly draw down maybe I have to reconsider.

http://www.moneymadeclear.fsa.gov.uk/pdfs/income_withdrawal.pdf

NB:  Companies that do this have a minimum fund requirement (usually around £100k) before you can do this. I have no idea how the US would tax on this.

Why give all your money over to an insurance company when you can be investing it!

Because investment carries risk, and some people can't afford to take risks with their pension fund.

Insurance companies are guaranteed to take a large percentage of your pension.  Plus when you die, they get most of the rest.  You can't pass it all (YOUR MONEY) to your beneficiaries.  This is 100% risk to pension holders.

Simple, you hold risky investments early in retirement, and over time (average retirement is 20 years) you move the investments to LOW risk types.

Forcing annuities on everyone is more nanny state nonsense.  If people want to buy annuities, fine let them.  Just don't force it on everyone else.

Insurance companies are guaranteed to take a large percentage of your pension.  Plus when you die, they get most of the rest.  You can't pass it all (YOUR MONEY) to your beneficiaries.  This is 100% risk to pension holders.

Simple, you hold risky investments early in retirement, and over time (average retirement is 20 years) you move the investments to LOW risk types.

Forcing annuities on everyone is more nanny state nonsense.  If people want to buy annuities, fine let them.  Just don't force it on everyone else.

The risk is whether or not you will die before your pension fund runs out. And have to live entirely on the state pension, which is very low. Which would depend on the size of your fund whether you have an additional source of income (or other forms of wealth such as property that you can use for income), and your life expectancy (which most people underestimate).

Also, there are now annuities which will allow you to pass money to beneficiaries if you die before 75, but you sacrifice income.

The rules may very well change, anyway, as lots of people agree with you. The gov't and insurance companies have been looking at drawdown-y products for middle income people.

ETA: The risk to the insurance company is that you will live longer than they expect and they will end up paying you more than you gave them in the first place.

Everyone should have a good financial consultant to help them properly scope their pension sizes and options so they don't draw too much.  This is all you need.  Assume you live long and be conservative.

The insurance companies are at an advantage because they have Ph.D's in math who analyze acturial tables to ASSURE they make profits taking into account that people are living longer, etc...

What this country needs is a 401(k) type plan.  It would give retirees more control and at the same time, put pressure on the insurance companies to offer more competitive annuities for people who really want them.

I miss alot of things about the US, and this is one of them

What this country needs is a 401(k) type plan.  It would give retirees more control and at the same time, put pressure on the insurance companies to offer more competitive annuities for people who really want them.

As I said, in the works.