If you have lived and worked in the UK you may well have built up your own pension benefits. Once you become an Australian permanent resident it may well be in your interests to transfer your built-up UK pensions to an Australian superannuation scheme.
This is primarily because any benefits you receive from a UK pension scheme in retirement, including the Tax Free Cash amount is taxable by the ATO. Whether or not you actually pay tax depends on your personal circumstances. In addition, you will be subject to the fluctuations in foreign exchange rates between GBP and AUD for the rest of your life. This means effective long-term planning becomes impossible.
What is a QROPS?
In order to transfer your UK pension benefits to any foreign jurisdiction without receiving heavy tax levies you must ensure the receiving scheme has QROPS status. QROPS is an HMRC requirement and stands for Qualifying Recognised Overseas Pension Scheme. If you wish to transfer your existing UK pension benefits into an Australian superannuation fund you must ensure it has QROPS status. The penalty imposed by HMRC for transferring to a foreign jurisdiction without QROPS status can be as high as 55% of the fund value.
What are the restrictions?
The restrictions applying to an Australian QROPS fund are subject to both the UK and the Australian rules.
UK Rules (briefly)
- You must be aged 55 or over in order to apply for QROPS status of your super fund
- The fund must report to HMRC every five years (unless other changes occur)
- You must invest in your Australian QROPS fund for 10 complete UK tax years since you ceased your UK tax status and at least 5 years since you transferred your funds to the Australian QROPS (for post 6/4/17 transfers)
- You must have an investment strategy that follows UK restrictions. If you invest in an authorised vehicle, such as residential property, this is deemed an unauthorised payment and subject to a 55% tax levy.
Australian Rules (briefly)
- You must be aged under 75 and if over 65 must satisfy the “Work Test” requirements
- If you are under age 65, remembering you need to be over aged 55, you are entitled to contribute $100,000 each tax year and by utilising the bring forward rule can contribute $300,000 in any one tax year by using the next two tax years limits in one year
- The amount of the transfer that is classed against your contribution levels is the value the day before you became an Australian tax resident
- Any growth since you became an Australian tax resident is classed as Applicable Fund Earnings, is not subject to the contribution limits, and if properly elected can be taxed within the Australian QROPS fund at 15% (as opposed to your marginal rate of income tax)
Why must the fund be an Australian QROPS?
You may well have read about fellow expats investing in QROPS funds in alternative jurisdictions. Commonly Gibraltar, Malta or New Zealand have previously been recommended as alternative QROPS jurisdictions to Australia.
Since 8 March 2017 HMRC imposed a restriction on which QROPS jurisdiction an individual can send their UK sourced pension funds to. Effectively, if you do not transfer your fund to the jurisdiction that you are currently a tax resident in, i.e. Australia, the fund will receive a 25% tax levy. This penalty is known as the Overseas Transfer Charge, you can read more about it here: HMRC: Overseas Transfer Charge
Therefore, in all but a very few circumstances, if you are looking to transfer your UK pension it must be to an Australian QROPS.
What Australian QROPS funds are available?
Since the 2015 rule change from the HMRC requiring Australian QROPS funds to only be accessible to those aged 55 and over, all retail and industry super funds lost their QROPS status. Therefore, unless you have an SMSF it is incredibly unlikely that your existing Australian super fund can accept a UK pension transfer.
Our full advice service will provide:
- Setting up your SMSF, making sure that the wording of the trust deed is compliant with UK pension regulations and that the SMSF is correctly set up under Australian law.
- Lodging a request for your SMSF to be registered as a QROPS with HMRC – this can be done online, and in order to do so you will need to provide the details of your SMSF along with its trust deed. (please be prepared to wait for between four and eight weeks for your request to be processed).
- Once your SMSF is registered as a QROPS, obtain, complete, and submit the required paperwork to release your UK pension and have it transferred to your SMSF.
- Creation and implementation of a compliant investment strategy
- Ongoing advice and maintenance of both UK and Australian QROPS compliance rules
Here is a link to an ATO video concerning SMSFs
Are there any retail Australian QROPS funds available?
No. There has been a retail Australian QROPS fund available until recently. However, HMRC reviewed its QROPS status and removed it. Therefore, at time of writing, December 2018, there are currently no retail Australian QROPS funds available. We are aware a number of specialist providers are aiming to introduce their retail Australian QROPS fund and we anticipate product launches in the second half of 2019.
Already transferred to an overseas QROPS?
If you have already transferred your UK pension to a QROPS compliant fund in an overseas country (i.e., not the UK or Australia) you may well benefit from a review. Whilst the new Oversea Tax Charge affects people looking at transferring to a country they are not tax resident in, this rule only applies if the transfer is after 8th March 2017.
- Do you know how your fund is performing?
- Is your portfolio aligned to your objectives and comfort levels?
- Are you invested in a “bond” with high exit penalties?
- Are you entitled to commence a transfer to Australia now?
- Are you aware of all your options?
- Are you receiving regular ongoing advice and maintenance of your fund?
We have a number of clients who:
- transferred their UK pension to an overseas jurisdiction QROPS fund, such as Gibraltar or Malta
- are unaware of their current options
- have not had a review by a qualified financial planner since they transferred
- are concerned that their fund is not working in their best interests
Is this familiar to you? If you would like a complimentary review of your current position and an outline of your options do not hesitate to contact us.