A recent piece of research by Royal London and Lane Clark & Peacock* suggests that the UK should make partial defined benefit transfers a permanent feature of pension freedoms, thereby enabling further flexibility and tailoring when it comes to retirement planning.
Such partial transfers, which would involve a portion of a defined benefit fund being transferred and the remaining sum being left in the fund, would hold undoubted appeal to cross-border individuals, potentially including those in the United States, as they open up the possibility of retirement savers effectively being allowed to enjoy the “best of both worlds”.
There appears to be widespread support for the proposed move, with Royal London reporting that of 350 pension transfer financial advisers surveyed 86 percent felt it would be a positive development.
Trustees are already allowed to offer partial transfers – for example, just this year automotive manufacturer Ford introduced partial defined transfers on a 50/50 basis – but a move to offer them as standard could further revolutionise the pension planning sector.
“Pension freedoms give people new options to shape their retirement wealth in the way that is right for them,” commented Sir Steve Webb, director of policy at Royal London. “But for too many people this is an all-or-nothing option, involving giving up all of their guaranteed pension income in retirement. We would like to see far more schemes offering partial transfers, where members can retain a secure pension but also enjoy greater flexibility. This genuinely could be the best of both worlds”.**
Greater options for British expats in the US
Partial transfers have the potential to increase the retirement planning options of US-interested British-based pension holders who manage their UK pensions from overseas, especially if they are looking to ensure they retain income while also achieving greater flexibility over their retirement funds.
However, given FATCA and other USA reporting requirements, there is also a realisation that partial transfers could bring even greater complexity to the pension planning process for non-resident aliens and other US-interested British-based pension members. While these complexities could be offset by inheritance planning benefits and, in some cases, enhanced access to tax-free income, partial transfers are unlikely to be for everyone.
Anything that increases choice in the retirement planning process, while also taking individuals from the “all or nothing” nature of defined benefit transfers, must be considered as a positive step, but, whatever the case, a successful partial transfer would undoubtedly require skilled cross-border financial advice.
Retirement planning with Blacktower in the US
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We help our clients to navigate the many complexities they face as foreign nationals in the US and bring a detailed practical and personal approach to financial advice, retirement planning and wealth management.
For more information about how we can help you maximize your wealth, speak with us today.
Disclaimer: Blacktower (US) LLC is not a tax adviser and independent tax advice should be sought. The above does not constitute advice and Blacktower (US) LLC makes no recommendation as to the suitability of any of the products or transactions mentioned.
* https://www.royallondon.com/siteassets/site-docs/media-centre/policy-papers/partial-transfers-of-db-benefits-october-2019.pdf Accessed 04-10-19
** https://www.ftadviser.com/pensions/2019/10/01/advisers-support-partial-db-transfers/ Accessed 04-10-19
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