Transferring UK contribution pension to Australia

[Sarah Bass]

Looking for guidance on bringing across a UK contribution pension scheme. But have some questions. 

Quick current status summary. We have been in Australia for 4 years first on a 457 and got granted our PR Sept 2016 (so have missed out on getting our Citizenship in September this year).  We are in our mid forties.

Assuming we do eventually get Citizenship and can afford to retire here my questions are:

Is there tax payable if we bring across our UK pensions and put them into an Australian super fund?

Ive seen some information around needing to leave the money in the fund for 5-10 years. Are we therefore best to look to bring it across now?

Whats the earliest Australian super funds can be accessed come retirement?

Is there limits to time spent abroad if you're drawing from your superfund in Australia. For example when retired up to 6 months is spent travelling a year. 

Whats the implications if the pension funds are left in the U.K. And then we draw down on them once retirement comes?

if anyone has experience of retiring here it would be great to here from you. 

Many thanks 

[Warnbro]

I would leave your UK fund where it is. As it stands, you can cash in your UK pension from aged 55 and before retiring. You can't access your Aussie super until you are 57 and you must be retired. Keeping the UK fund going will give you the option to grab some cash if anything comes up before you retire.

I cashed up one small UK pension last year and transferred the money to a UK bank account. We used it to pay for a holiday in the UK at Christmas.

Also, it's always worth keeping a UK bank account open. We did. We use my dads address.

[Alan Collett]

Hello Sarah.

Until you are aged 55+ you are unable to transfer your UK pension benefits to an Australian superannuation fund - the rules of the game changed a couple of years ago.

From a tax perspective it is though likely to be well worth looking at this more fully in a few years from now.

A pension drawn from the UK will be taxable in Australia if you are tax resident in Australia at that time.

A UK fund that is transferred into an Australian superannuation fund is likely to be accessible in your more senior years on a free of tax basis.

Best regards.

[Pommie]

Hi Sarah

I have been looking at various options regarding my UK pension ahead of migrating to Perth in the coming weeks.  In March 2017, the UK government tightened the rules further which have further reduced some of the options (well, they actually reduced the attractiveness of some of the options).

Firstly, you don't mention the approx size of the pension pot, perhaps for good reason, but note, it it is above GBP 1 million or AUD $1.6 million, then you are above the Lifetime allowance cap and hence additional taxes will apply.  

Option 1 - Move it to Australia

As Alan mentions above, you can't do this until you are 55 as Australian QROPS (qualifying overseas pension schemes) will not accept anyone below this age.  This is actually driven by HMRC, and long story short, unless something changes, you have 10 years to wait.

There are limits on how much you can transfer across tax efficiently (reduces to $300k in July 2017 - could have changed again in the next 10 years).  You can add more after this, but much smaller numbers.  If your pension pot is below $300k, then you could transfer it tax efficiently to Australia as part of your Australian Super (with no tax to pay in the UK).  

If the amount you have to move is above the annual transfer limits, you begin getting taxed in Australia at your marginal tax rate - hence you would be tempted to wait until you have actually retired to take advantage of the tax free and lower tax bands from your personal allowances. 

Note, observe inheritance tax rules between UK and Australia.  I would advise making sure all of your funds are transferred before you turn 74 (sounds easy, but not if you don't start transferring until your 65)...

Also, you pay 15% tax to Australia (ATO) on ANY growth in the fund from the time you became resident in Australia.  other taxes may apply as I indicate above, depending upon the size of your fund.

Option 2 - Move it to New Zealand

The HMRC change in March has really made this less attractive (buggers)..  In short, Brits emigrating to Australia (NOT NEW ZEALAND) can do the following:-

1. Move your UK pension to an New Zealand QROPS (essentially, New Zealand government allow non resident pension funds to offer zero rate tax schemes as a way of boosting the cash brought into their economy).  The impact of this is:-

2. Pay ZERO % tax on any growth in the fund. You can choose either GBP or AUD investments, which means you can keep it in sterling for now and then flip them to AUD when the exchange rate improves in the years ahead.

3. You can move it NOW - you don't have to wait until your 55.  Naturally, you can't move it to Australia until you are 55.

4. At age 55 (or older) you simply draw it down and it is paid into your Australian bank account.  Again, tax free.  Technically it is deemed a return of capital (and growth) and it is tax free because of the trans tasman double taxation agreement between Australia and New Zealand.

Sounds to good to be true.  Well, thats why HMRC stepped in as lots of people were doing it and have levied a 25% exit tax on UK pensions if you move it to a place you are NOT resident in.  It is still a tax efficient way for large pension transfers, but it clearly lowers the benefits.

The other risk is whether the Australian government change the rules in the next 10 years and you get hit with tax coming into Australia - thats what I am frightened of.

If we had done it pre-march....  it would have been a great option....

Option 3 - Leave it in the UK for now

This is what I am doing.  I am moving a fairly significant Defined benefit into a UK SIPP (personal pension plan) with BDH Sterling.  I am initially holding it in sterling, but again I have the ability to convert the fund to AUD when the exchange rate is more attractive - hence whilst I can't move it to Australia until I'm 55, I can still jump on any exchange rate benefits in the next 10 years or so....

At age 55 I will move as much as possible into Australia tax efficiently.  If New Zealand is still an option at this time, I may look to do this for some or all of my pension.

I am not recommending BDH Sterling (or earning commission or anything) but what I like about them is they have UK and Australian offices as well as offering the NZ option.  They can also help with the tax advice side of things as well as with the physical transfer to an Australian QROPS.

Sorry for the long message....   feel free to PM me if I can help further...

[Andrew Williams]

Very good summary Pommie.

One thing to add about the New Zealand option....whilst this may theoretically be the case I am not sure how well it has been tested from an ATO point of view.

From all of the commentary received by various Australian and New Zealand tax advisers it is clear that the Trans -Tasman agreement did not have this in mind when it was agreed (ie moving a UK pension which is viewed as assessable in the eyes of the ATO to NZ to then avoid ATO tax).

I had put a few private rulings in to the ATO regards this prior to the new HMRC OTC of 25%, so pulled them when it was introduced.

Certainly for me I really cannot see too many reasons why someone would want to consider a 25% hit (perhaps very limited circumstances), the other potential risk for this is that these schemes are very new , they were only opened fairly recently and prior to the HMRC changes to fill a gap for UK expats in Australia below age 55, therefore inflows had not really started and of course since the HMRC announcement will now be even more limited.

The risk being that the fund may decide to wind up if it is not bringing in enough to make it viable. 

KR

Andy

[Pommie]

I agree with the risk to the fund Andrew... hence I am going for the UK SIPP route for now.

 

i was also concerned about the ATO - less so before the 25% tax as my driver wasn't tax avoidance, but more to move it away from changing U.K. Legislation....  however, the risk of being taxed on the way out of the UK and then again when you bring it into Australia is eye watering...

 

 

 

[Collie]

Excellant posts guys.

 

Quick ?  Do the same rules apply for a private Irish pension?  I imagine the Aussie rules are the same but different in the source country.

[Andrew Williams]

17 hours ago, Collie said:

Excellant posts guys.

 

Quick ?  Do the same rules apply for a private Irish pension?  I imagine the Aussie rules are the same but different in the source country.

No the QROPS rules do not apply to Irish Pensions.

However they do have their own set of rules, funnily enough I have been looking at an Irish Pension for a client recently and in his case due to the pension type (buy-out bond) it is not possible to transfer it directly to Australia.

I was told by the company that it can be transferred to the UK (subject to certain conditions) which then means if transferred it will be caught up in the QROPS environment (assuming a latter transfer to OZ occurs) however having been in discussions with my Irish counterpart such a move for this client is not be possible.

So for him it seems that it is stuck where it is (that's not too say the same applies across the board).

Regards

Andy

[Erin]

Some great (if not very cheery) advice . As we are in Perth and sadly Andrew is in SA has anybody had any good experience or advice about finding an "Andrew" that is based in Perth?  I have looked online but nothing is better than a personal recommendation/experience.

[Alan Collett]

17 hours ago, Erin said:

Some great (if not very cheery) advice . As we are in Perth and sadly Andrew is in SA has anybody had any good experience or advice about finding an "Andrew" that is based in Perth?  I have looked online but nothing is better than a personal recommendation/experience.

Hi Erin.

I'm sure Andrew will be able to assist you, even though he is in SA.

Best regards.

[Andrew Williams]

Thanks Alan

I've actually spoken to Erin before and some people prefer face to face, which is totally understandable.