Australian Superannuation - Transfers from the UK to QROPS Funds

QROPS : Pension Transfers from the UK to Australia

We have received a number of inquiries regarding the new Pension regime announced in the UK effective April 6, 2006 (“A-Day”) and particularly its impact on Australian expatriates and English immigrants wishing to transfer UK pensions into Australian superannuation funds.

HM Revenue & Customs (HMRC) has produced a handout which summarises the changes and you will see that the major impact on those wishing to transfer pension entitlements is that:

• Transfers out of UK registered pension schemes will be tested against a lifetime allowance (LTA) and any amounts transferred above this level will be taxed at a rate of 25%. 

• Transfers below the LTA won’t attract a tax charge as long as the receiving  overseas scheme is a “qualifying recognised overseas pensions scheme” (QROPS)

• Transfers to an overseas scheme which is not a QROPS are treated as “unauthorised payments” and attract tax charges of 40%.

Since this announcement a number of Australian superannuation funds have applied for and received QROPS status – HMRC maintains a list of qualifying funds on its website.  At the present time, these represent a small fraction of the superannuation funds within Australia – qualification and reporting requirements are reasonably onerous and it is hard to predict how many funds might eventually qualify.  A number of self managed or DIY superannuation funds in Australia have met QROPS requirements and this increases the transferee's range of choice considerably. Obviously, given the additional administrative and legal overheads imposed by QROPS, you would probably need a reasonable amount of funds to justify this approach. Apart from registration, the scheme needs to meet specific reporting requirements for a period of 5 years after the date of the last transfer from the UK.

Please note that these changes do not require you to transfer your pension – you may continue to leave it in the UK and eventually receive a sterling pension.  Whether this is the correct approach – from a tax and personal perspective – can be complicated issues, and arranging transfers can be expensive and time consuming. The area of most difficulty is in the area of "defined benefit" or "final salary" schemes - where pensions are based on the member’s salary and length of service. Transfer values out of these funds are essentially the present day cash value of deferred retirement income promises made by employers. They depend very much on assumptions made regarding investment returns by the fund - the higher the assumptions made (and recent returns have been high) the smaller the sum paid out. This, and the fact that pensions are usually indexed in some fashion, has to be balanced out against the benefits of transfer into an Australian superannuation, and most particularly the tax benefits.

In the latter context, recent changes to superannuation rules in Australia, specifically those providing tax free status to certain income streams, have added impetus to the transfer of pensions into Australian superannuation.

It is firmly suggested that you get professional advice on these matters before committing yourself to an approach.  Also be prepared to ‘shop around” and compare the various advisors and their level of fees. Many advisors currently charge a base fee and then a “percentage of funds transferred”, which seems incongruous given that the advice and effort should be largely the same regardless of the amount(s) transferred. In response to this situation we have now launched our own service, providing access to the services of an experienced and professional Actuarial firm which will manage all aspects of the pension transfer process on a fixed fee basis. For more details on both the process, the surrounding issues and fees please see our section on Pension Transfers.

Should you wish to make an inquiry through Exfin about the transfer of a pension from the UK or elsewhere to Australia, or are seeking professional advice in a related matter, please click on the link at the bottom of this page. 

Complete the Superannuation Inquiry form