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How do I transfer my pension to Australia

How do I transfer my pension to Australia?

Whether you are an Australian resident or someone who plans to live and/or retire in Australia, it is essential to put a plan in place for your retirement finances and make sure that your money is located where you want it to be and where it makes most financial and tax sense. One top question at Hoxton Capital Management is, “How do I transfer my pension to Australia?”. We answer that question below.

To learn more, download our UK pension transfer Australian guide here.

Pension transfer Australia

Contents

Which pension funds can be transferred?

What pension funds can’t be transferred?

  • The UK State Pension
  • Annuities purchased with a life insurance company
  • Company Pension already in payment
  • Unfunded Public Sector-Defined Benefit Schemes

Member Payment Provision Period (MPPP)

Specific rules apply during the first ten complete UK tax years after you have moved abroad and the first five years after you make a pension transfer from the UK to Australia (which could finish later).

This period is known as the Member Payment Provision Period (MPPP). If payments are made to a member within the MPPP, from the QROPS, outside the scope of what is permitted from a QROPS, an unauthorised payment charge would apply to the payment.

Why transfer your UK pension to Australia?

What is a QROPS SMSF?

A QROPS SMSF is an Australian Self-Managed Superannuation Fund that has met the designation of QROPS as prescribed by HMRC. As mentioned, a UK Pension transfer cannot occur to any overseas scheme that is not a QROPS. To qualify as a QROPS in the post-6th April 2015 legislative environment, an SMSF requires a specially drafted trust deed.

What is the Age 55 rule?

The requirement for a specially drafted trust deed for Australian superannuation funds was a direct result in 2015 of HMRC removing all Australian QROPS from the approved list. HMRC took this action as they were concerned that Australian superannuation schemes could pay certain benefits to members before age 55 – thus breaking the ‘Pension Age Test’ condition of being a QROPS.

Regardless, it is essential that individuals who are not yet 55 still take advice regarding their UK pensions. In the interim, some important options and opportunities can be capitalised on regarding the UK pension fund. Subsequently, some Self-Managed superannuation funds changed their trust deeds to allow only memberships to individuals who have already attained age 55.

Also, a specialist retail fund known as the Australian Expatriate Superannuation Fund came into existence. These schemes would not breach the ‘Pension Age Test’ and meet the conditions to become QROPS. UK pension funds, therefore, cannot be transferred to Australia until the member reaches the age of 55.

What is the Non-Concessional Contribution Cap?

The Non-Concessional Contribution cap (NCCC) is the limit an Australian resident can contribute into an

The Non-Concessional Contributions Cap (NCCC) is the limit an Australian resident can contribute into an Australian superannuation scheme from their post-tax earnings. Included in this cap may be transferred in from non-Australian schemes – such as UK pensions. From the 1st July 2021, this cap is $110,000 per Australian tax year. If a member is under age 67, it may be possible to ‘bring forward’ two years ‘worth of non-concessional contributions and transfer $330,000 in one tax year from the UK. The member would have to wait two complete Australian tax years before they can make a further transfer.

UK Pension transfer options

What are your options now?

    1. Direct UK Pension Transfer – if you meet the requirements, you should be able to complete a direct transfer
    2. Indirect UK Pension Transfer – the best option for those who can’t complete a direct transfer is to use an interim vehicle such as a SIPP (Self-Invested Personal Pension). This may provide additional benefits, such as allowing the pension to hold Australian dollar investments.
    3. Do nothing, remain status quo

Why Transfer your UK pension to Australia?

  • Tax effectiveness in retirement – In Australia, from age 60, pension income stream and lump sums drawn from superannuation will usually be entirely tax-free. Pensions drawn from UK schemes can be taxed at your Australian marginal tax rate (MTR), which can be up to 47%
  • Greater control over retirement benefits – You may have greater control and management of your retirement benefits by consolidating and ultimately transferring them to Australia, where you intend to retire.
  • Flexibility of income – Depending upon your age and needs, you can choose between paying out 0%and 100% of your benefits each year.
  • Manage locally – Many clients prefer to manage their assets locally.
  • Eliminating long-term currency risk – Transferring your pension can eliminate the currency risk involved if you continue to take your benefits at retirement from the UK. If your pension is paid from the UK, the amount you receive will vary according to the value of £1 to AUD$1. Transferring can allow peace of mind because you won’t have to worry about the source or regularity of your retirement income.
  • Avoidance of additional telegraphic transfer fees – If regular income in retirement is drawn directly from a UK scheme, you may incur ongoing costs for each transfer.
  • Succession planning – UK pensions can be taxed upon death or cease altogether on your dependent’s death. The Australian system can provide more flexibility and advantages to your children and/or other beneficiaries.

Disadvantages of transferring

However, transferring your UK pension isn’t always the most suitable course of action. Like many aspects of financial planning, there’s no universal solution. This especially holds true for pension transfers, which may not align with your unique circumstances.

  • Loss of Existing Benefits and Guarantees: Moving your pension abroad may result in losing valuable benefits and guarantees associated with your UK pension, which could impact your overall retirement security.
  • Charges and Fees: You may encounter initial charges and fees when transferring your pension, and ongoing costs in your new scheme could potentially be high, reducing the overall value of your retirement savings.
  • Flexibility Concerns: Ensure that your new pension scheme provides the same level of flexibility in accessing your benefits when needed. Inadequate flexibility could limit your financial options in retirement.

Regardless of your situation and future intentions, seeking expert advice is crucial before taking action. Making an ill-informed decision could lead to substantial, potentially irreversible financial consequences.

Not all UK pensions are eligible for transfer to a superannuation fund:

  • Most money purchase company pension schemes, privately funded pensions, and certain public sector defined benefit schemes can usually be transferred, although there might be exceptions.

However, the following pensions cannot be transferred to a superannuation fund:

    1. Government unfunded pensions, like the NHS pension scheme.
    2. Company pensions from which you are already receiving pension payments.
    3. Company pensions are covered by the Pension Protection Fund (PPF).
    4. Annuities purchased from a life insurance company.
    5. Your UK State Pension.

Your UK State Pension cannot be transferred, but it can be paid to you in Australia. However, it’s important to note that it won’t increase in value annually.

DID YOU ALREADY TRANSFER YOUR UK FUNDS TO A QROPS?

Despite previous assurances, this pension will not be exempt from taxation in Australia. However, viable solutions are available such as the UK Pension Transfer Australia or the New Zealand QROPS. Many British expatriates in Australia with pre-existing private or employee pensions in the UK have utilised the QROPS, a Qualifying Recognised Overseas Pension Scheme. However, QROPS solutions recommended to expats in the late 2000s and early 2010s were typically Malta or Gibraltar-based, which the Australian Taxation Office (ATO) did not recognise. Therefore, pensions may now be taxed at a higher rate than those based in ATO-recognized countries, and there is a potential risk of mismanagement if the scheme is not regulated by the Australian Securities and Investments Commission (ASIC).

The solution – The New Zealand QROPS

British expats who have relocated to Australia and possess pre-existing private or employee pensions in the UK have frequently utilised the QROPS (Qualifying Recognised Overseas Pension Scheme) as a solution. In the late 2000s and early 2010s, Malta or Gibraltar-based QROPS were commonly proposed to expats; however, these schemes are not recognised by the Australian Taxation Office (ATO). Consequently, your pension may be taxed more than if it were located in an ATO-recognized country. Moreover, such pensions may not be regulated by the Australian Securities and Investments Commission (ASIC), putting the pensioner in peril if the scheme is not appropriately managed. Moving your pension from the Malta or Gibraltar QROPS to a New Zealand QROPS can save you a significant sum on taxes, thereby making a substantial difference to your retirement income. Due to the double tax agreement between Australia and New Zealand, if you are an Australian resident with a QROPS in New Zealand, your pension income can be taxed at a ZERO tax band in New Zealand rather than in Australia. This implies that transferring your pension to a New Zealand QROPS can help you avoid 100% of your Australian pension taxes.

GREATER FLEXIBILITY AND WITHDRAWAL OPTIONS

The New Zealand QROPS solution presents additional flexibility. It enables periodic withdrawals to be initiated at age 55, and complete encashment is feasible after turning 60, although this may not always be appropriate or advantageous. You can withdraw your UK Pension Transfer Money upon reaching the minimum pension age in the UK (presently 55 years old). If you meet the UK’s criteria for ill health, you may be eligible to withdraw your UK Pension Transfer Money; medical evidence will be necessary to establish if you meet the relevant conditions. Transferring to the NZ scheme is exceptionally straightforward and comparably rapid.

 

Disadvantages of New Zealand QROPS

Limited Access to Funds: Transferring your pension to a NZ QROPS may restrict your access to the funds until you reach the age of 55, which is the minimum retirement age in New Zealand. This can be a disadvantage if you have plans to access your pension earlier in your home country. Different jurisdictions have varying rules regarding when to access your pension funds, and New Zealand’s rules may not align with your retirement plans.

Currency Risk: When you transfer your pension to a NZ QROPS, your funds may be denominated in New Zealand dollars (NZD). This exposes you to currency risk, especially if you plan to retire or spend your pension in a different currency. Fluctuations in exchange rates can significantly impact the value of your pension fund in your home currency. If the NZD strengthens against your home currency, you may receive fewer funds than expected when you eventually access your pension.

Contact us today to learn how/whether moving your pension to a New Zealand QROPS can benefit you. At the very least, please review the current situation concerning the taxability of your existing pension solution before it becomes too late for you to make any changes. To learn more, download our Australian guide here.

UK Pension Transfer Webinar

Watch here to see what our Australian in-house pension expert, Emma Norton Selzer, had to say in this latest webinar with all her client’s top questions.Australia webinar

If the value of the pension scheme is more than £30K, the individual has a legal requirement to obtain advice from a regulated financial adviser. Get in touch to speak to them today.

HOW CAN WE HELP YOU?

If you would like to speak to one of our advisers, please get in touch today.

How can we help you?

If you would like to speak to one of our advisers, please get in touch today.

Disclaimer

The information on this page is directed only at persons outside the United Kingdom and must not be acted upon by persons in the United Kingdom.

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