Pension Transfers to Australia

Transferring "Large Sums" into Superannuation from Overseas

While the new Superannuation regime which came into place on 1 July, 2007 improved and simplified many aspects of superannuation the new caps on non-concessional (NC) contributions can greatly restrict the ability to transfer larger pension balances into Australian superannuation. This is because, under the new regime, the NC portion of any transfer exceeding $450,000 will be taxed at 46.5%. This tax will be imposed on the individual, who must withdraw an amount from their fund equal to their tax liability.  Australian superannuation funds will also be prohibited from accepting more than $450,000 in NC contributions within a financial year.

There was some hope that the Government would make some allowance for expatriates, and include a higher ceiling or an exemption to reflect the fact that an expatriate may be transferring many years of pension accumulation.  This has not occurred however, and there is now a perverse situation in which countries like the UK will allow the transfer of much higher sums out of the country (to a QROPS and subject to no taxation within an individual’s lifetime allowance) but this cannot be accepted by the Australian fund.  Additionally, when the expatriate has become tax resident, they may find that the balances which they have accrued overseas (and are not able to remit in their entirety) are subject to taxation (including that of unrealised gains) under the Foreign Investment Fund regime if they do not fall within the definition of “employer sponsored” funds

There are several factors that further exacerbate the situation.  For example, the first response to this situation is usually to consider the “drip feeding” or “staggered payment” of overseas funds into the Australian superannuation account. With large sums this can take quite a long period, but the main problem is that pension funds,  particularly defined benefit schemes, will usually not support the approach and require single payment transfers. Additionally, the ability to have any transfer taxed at 15% within the receiving superannuation fund is dependent on the transferee having (sic) extinguished their interest in the sending fund.  Thus, even if the sending fund was inclined to support a drip feed approach the tax consequences may be very disadvantageous.

In response to this situation, we are participating in the development of a process which will provide for the staggered payment of overseas pension funds into Australian superannuation funds in a secure, tax and administratively efficient fashion.  The process should be in place for UK pension balances by last quarter of 2007.  As part of this process a program is being developed by actuaries and tax professionals which will accurately model the financial impact of transferring the funds in a fashion which will clearly show the net benefit, or otherwise, of such a process, versus the alternatives, such as continued retention overseas.  This will allow clients to make a reasoned judgement about the utility of entering into a process that may spread over quite a few years, and to model the impact of alternative scenarios.  We don’t believe anyone should commit to such an approach in the absence of precise  analysis of alternatives and their financial impact.

Individuals and advisers who are interested in learning more details regarding the process and the associated model are encouraged to lodge an inquiry now, and we will follow up with the necessary details when they become available in the coming months.

Complete the Pensions inquiry form