Pension Transfers to Australia

QROPS : Pension Transfers from the UK to Australia

On April 6, 2006 (“A-Day”) the United Kingdom introduced a new Pension's regime which significantly affected the basis on which UK pension funds could be transferred to overseas pension funds - such as 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%.

In the period since this announcement quite a large number of Australian superannuation funds have applied for and received QROPS status – HMRC maintains a up to date, but not entirely complete, list of QROPS pension funds on its website.  It is now also relatively easy to establish a Self Managed Superannuation Fund (SMSF) in Australia and receive QROPS certification - increasing the transferees range of choice quite considerably. Obviously, given the additional administrative and legal overheads imposed by QROPS, you need a reasonable level of funds to justify the approach - but this applies to the establishment of these funds in general. 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 issue. 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 and other issues 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. Through our Actuarial partners we can now offer access to both an independent, professional Actuarial report addressing whether you should consider a transfer your pension, and to a fixed price pension transfer process.

In the latter context, changes made to the taxation of income and lump sum payments from complying Australian superannuation - basically making payments to those aged 60 or over tax free - have added a lot of recent impetus to the transfer of funds into Australian funds.

It is firmly suggested that you get professional advice on the matter before committing yourself to an approach.  Be prepared to ‘shop around” and compare both the advisors and their level of fees. Many advisors currently charge a fee tied to “percentage of funds transferred”, which seems incongruous given that the advice should be basically the same regardless of the amount transferred.

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