As you are looking for advice around your UK pension transfer to Australia this page is relevant to you. If you are aged 55 or over then you may well be fortunate enough to be entitled to transfer your UK pensions directly to Australia. This will need to be managed using a QROPS fund to avoid huge tax penalties.
UK Pensions advice for those now resident in Australia can clearly be separated between the over 55 year olds and the under 55s. This is because in order to meet the UK’s HMRC rules to register as a Qualifying Recognised Overseas Pension Scheme (QROPS) and therefore allow a transfer of UK funds overseas, the membership of the fund must be only allowable for those aged 55 or over.
We will manage the entire process for you, ensuring your best interests are being met at all times.
Why consider a transfer?
- Currently defined benefit schemes are providing historically high Cash Equivalent Transfer Values (CETV)
- Tax free income in retirement (subject to Australian and HMRC rules)
- Advantageous tax and death benefit position
- Avoid lifelong currency fluctuations when drawing your income
- Avoid the uncertainty surrounding BREXIT
- Access to local Australian regulated and qualified advice
- Benefit from modern financial technology and fee structures
- Remain invested in GBP sterling if this is your preference
- Receive regular financial reviews in Australia
Harding Wealth Management is able to assist clients who require:
- UK pension transfer to Australia advice, not an administration only service
- Clear, well-qualified and ethical advice around their UK pension options
- Advice from a planner with the requisite UK qualifications and holds Certified Financial Planner status in the UK and in Australia
- Advice on the transfer of any defined or safeguarded benefit based funds
- Advice for clients with balances over the non-concessional contribution cap (currently $300,000) that possibly cannot transfer all of their funds to Australia in one movement
- Consolidation of multiple funds in the UK prior to transferring
- Australian based Investment portfolios in GBP or AUD depending on your preference
We provide you with access to an SMSF with QROPS status to allow you to have your UK pension fund transferred to Australia.
Things You Ought To Know
If your UK pension funds were valued at or over around $300,000 from the day you became an Australian tax resident, then you may not be entitled to bring them over to Australia in one movement, as this figure breaches the Australian maximum contribution limits.
This is because the Australian Taxation Office (ATO) does not consider a UK pension transfer to Australia as a transfer of existing pension funds, but is, in fact, a new contribution to Australian super. It, therefore, falls within the rules for non-concessional superannuation contributions. Click here for more information.
Currently, you may be permitted to transfer $100,000AUD in any one tax year and by taking advantage of the bring-forward rule you should be able to contribute for the next two years as well. This means that as long as you have not made any non-concessional contributions already and have the full bring forward eligibility you may well be permitted to transfer $300,000 in one transaction. This figure does not include any Applicable Fund Earnings.
There are age restrictions placed on the non-concessional contribution eligibility rules and if you are approaching age 65 you ought to seek advice now.
If your UK pension fund exceeded the equivalent $300,000 or you have already used the non-concessional contribution cap then there are specific strategies we recommend which may mean you will be able to transfer across in tranches over an extended period of time.
This process involves maintaining a UK Self Invested Personal Pension (SIPP) account specifically created for overseas investors. We will still be your adviser and will implement a full investment portfolio in both countries for you.
Several factors should be taken into account when considering transferring your UK pension fund. This is further highlighted on our page: 3 Key Areas
Some of the more specific areas include;
- Understanding your current pension fund and any guarantees provided
- Many clients ask us to transfer their funds without actually considering any guarantees they may be losing. We have the necessary qualifications and experience of UK pensions to prevent our clients from making potentially costly mistakes.
- Defined benefit or Defined contribution funds
- Which style is your fund? What does it mean? What will you be giving up by transferring out? Have you received a balanced appraisal of both options?
- UK Tax implications
- Calculation of any tax due to the ATO fully integrated into our advice before you transfer
- Size of fund and meeting superannuation contribution limits to allow a UK pension transfer to Australia
- Designing appropriate investment strategies and ongoing investment reviews
- How will your money be invested? Can you invest in either GBP or AUD with a wide range of options or just a narrow, expensive platform?
- Intention to remain and retire in Australia
- If you transfer your funds to Australia it is a one-way street. You are not entitled to transfer Australian funds to a UK Pension.
- Currency issues and fluctuations
- Are you prepared to receive an income stream from the UK that is not only tax assessable but also will fluctuate due to the movements in foreign exchange rates over your lifetime?
- Maintaining QROPS compliance to avoid the 55% fund penalty
Tax on Transfer?
We receive many enquiries on this issue. If you bring your UK pension transfer to Australia after 6 months of tax residency there may be a tax consequence in doing so. Under Section 305-75 of the Income Tax Assessment Act 1997 there may be a liability to what is referred to as Applicable Fund Earnings. Click here for more information.
To place it into context, the ATO taxes income within an Australian superannuation fund at 15%. This is the case with virtually all super funds and is a vital part of the Australian super system. Therefore, what the ATO is saying, in our opinion quite rightly, is that as you were an Australian tax resident from date of arrival, your super fund should pay back tax of, between then and when you transfer the money into Australia. This tax can either be added to your personal income and taxed at your marginal rate or taxed within the super fund at 15%, whichever is your personal preference.
To be clear, this is a tax on the difference of values between your arrival and the physical transfer of pension funds, not on the entire fund balance. Therefore, if the balance has fallen during this time there is no tax due.
We recommend you receive personal taxation advice from a registered tax agent before making your selection.
Getting It Right
When calculating the Applicable Fund Earnings you will need to know the value of the fund on the day you arrived in Australia (or became a tax resident if this differs). This is relatively straightforward for those with defined contribution funds such as a Personal Pension Plan or Stakeholder Pension, as the pension provider will usually be able to send a past statement.
This is NOT the case for those with defined benefit funds as it is highly unlikely you will have a Cash Equivalent Transfer Value from your scheme trustees dated the day you became an Australian tax resident.
One of the significant benefits of engaging with our service is that we can include this tax calculation within our advice. By engaging with an independent actuarial service your tax calculation will be accurately assessed for you. We strongly recommend that you do not simply use a CPI or RPI discount methodology as this is not the correct ATO method. Ultimately it is you who signs the Tax Declaration so you need to be confident the amounts entered are correct.
Your Options on Transfer
Self Managed Super Funds (SMSF) with QROPS status
Most Australian schemes which are established to receive pensions from the UK are SMSFs. This is because standard retail funds lost their QROPS status in April 2015 by allowing membership for the under 55s. Therefore to gain new QROPS status the super fund must agree to only allow membership for over 55s. As an early adopter of this rule, we have access to the correct Corporate Trust Deed using Self Managed Super Funds (SMSF).
We are qualified to provide this service and also to assist you to understand the investment restrictions of a QROPS.
Advantages & Disadvantages of a Self-Managed Super Fund
The main advantages of an SMSF are:
- Greater control of your super funds in terms of investment decisions and strategy.
- Maintenance of HMRC QROPS compliance
- Potential costs savings due to having fixed rate fees rather than the standard percentage of funds fees
- Choice of platform provider through us
- As a QROPS status fund, it can manage your UK pension transfer to Australia
- Multi-currency investment options available
- Control and flexibility of distribution of death benefits
- Ability to hold direct property (commercial) plus other investments not usually allowable such as unlisted shares
The main disadvantages of an SMSF are:
- Time commitment may become too onerous for the Trustees (you)
- Lack of technical expertise requiring outsourcing of advisers which adds a layer of cost
- Extra fees such as audit and accountancy fees
- Legal responsibilities of Trusteeship may be considered too much
It is a popular belief within Australian financial services that a client’s fund should be valued at around $200,000 to make an SMSF cost effective. If your fund is below this level or if you do not wish to set up an SMSF due to its compliance burdens, we are able to recommend one of the new retail QROPS funds available, which have been designed specifically for you. Please review our SMSF administrators page for more information.
The “New” Retail QROPS funds
There is currently only one retail QROPS fund available in Australia. As part of our advice process, we will explain the differences including advantages and disadvantages of investing in either a QROPS compliant SMSF or the new retail fund. There are clear advantages for each option and our advice will be specific to your personal circumstances and objectives.
The main advantages of a retail QROPS are:
- No requirement to set up an SMSF and hold the Trustees compliance requirements
- It is ready to accept your funds now
- The quickest way to implement your UK pension transfer to Australia
- Will accept low balances
- Some limited multi-currency investment options available
- Control and flexibility of distribution of death benefits
The main disadvantages of a retail QROPS are:
- Limited choice of providers
- Lack of investment control
- High annual management fees
- High early exit penalties
- Limited investment options
Our personalised advice service includes the following;
- Complete factfinding and attitude to risk benchmarking
- Obtaining all information from your UK pension scheme(s)
- Organising and then presenting a UK Pension Transfer Suitability Report and recommendation based on your new Australian investment portfolio
- Discussing the outcome of this recommendation with you to ensure it matches your own personal circumstances
- Where applicable, establishing an interim UK pension scheme
- Preparing the Australian advice document called a Statement of Advice
- Establishing an Australian compliant scheme to receive your pension transfer from the UK
- Full implementation of your UK pension transfer to Australia
- Preparation of all trustee/member applications and minutes
- Australian Tax Office fund registration
- The provision of a Tax File Number (TFN) and Australian Business Number (ABN)
- Establishing fund bank accounts
- Calculation of Applicable Fund Earnings tax
- Regular reviews to maintain QROPS compliance including Investment Strategy
- Total advice package regarding personal protection suite