QROPS : Pension Transfers from the UK to Australia

On April 6, 2006 a new pension transfer regime became applicable to transfers out of UK pension funds into foreign pension schemes.  In order to avoid very significant taxation of transfers receiving funds had to be certified as Qualifying Recognised Overseas Pension Schemes (QROPS).  HM Revenue & Customs (HMRC) has produced a <a href="General%20Materials/QROPS%20pensions-for-individual-int-v2.pdf" target="_blank">QROPS brochure</a> 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 are 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 do not attract tax charges as long as the receiving overseas scheme is a qualifying recognised overseas pensions (QROPS). Transfers to an overseas scheme which is not a QROPS are treated as unauthorised payments and attract tax charges of 40%, or more.

Since this announcement an increasing number of Australian superannuation funds have applied for and received QROPS status. HMRC maintains a list of qualifying funds on its website.  Self managed superannuation funds in Australia can also receive QROPS certification and this substantially 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 should be subject to professional advice.

The area of most difficulty is in the area of “final salary” or “defined benefit” 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.  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 recommended that you obtain professional advice on these matters before committing yourself to an approach. Exfin has 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.

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