Superannuation

Transferring Overseas Pension Funds into Australia

Until very recently individuals taking up residence in Australia for the first time, or expatriates returning from foreign service were given six months from date of entry to effect a transfer of their foreign pension fund benefits on a tax free basis. Foreign superannuation could be transferred directly to a regulated fund in Australia provided the individual making the transfer was eligible to make superannuation contributions. The benefits transferred would then be treated as undeducted contributions free of tax.

If the transfer of the benefits was made after the six-month window of opportunity, tax at the individual's marginal tax rate would be payable in Australia on the growth component. The growth component was calculated as the increase in value of the fund balance between the date residence commences and the time that the transfer to Australia was actually made. Apart from the very narrow time frame allowed, there was no provision for the fund to pay any tax - leaving the individual to pay the cost of advisers, often including actuaries, and also the tax applied.

However, changes which came into effect on July 1st 2004, now provide that:

1. If the expatriate returns to Australia, any lump sum payment from the fund within the first six months following repatriation will not be subject to Australian income tax.
   
2. If the expatriate withdraws directly from the account as a lump sum after the six months expires, then a personal tax liability will be payable, only on the portion of benefit that has accrued after repatriation to Australia.
   
3. Any growth of an overseas pension from the date the individual becomes an Australian tax resident, to the date they transfer their benefit to Australia, will be assessed as a 15% superannuation fund tax. The tax will be payable by the Australian receiving fund, whereas previously the growth was assessed as personal income and tax levied at marginal rates, up to 48.5%.
   
4. Where the benefits are drawn as a pension (income stream), the pension is fully assessable in Australia, subject to an annual tax free "deductible amount" relating to any personal contributions made to the fund."

This can be a very complicated process, particularly when it comes to the valuation and transfer of pensions from a foreign country, and particularly from defined benefit schemes. Also having a bearing is the potential for overseas pension funds, such as UK personal pensions and American IRA's, to be taxed under Australia FIF regulations. You are strenuously advised to seek advice in this area. It is probably fair to say that whilst it may not always be appropriate to effect a transfer of benefits into Australia, individuals should understand the various factors that need to be considered.

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

The costs of transferring a pension, in terms of professional advice and assistance, are not inconsquential and you should seek a full explanation of costs from any adviser. Individual situations will vary in terms of complexity, but we have never been comfortable with advisers charging a percentage of the pension value, often around 3-5% subject to a minimum, since most of the costs are driven by time and complexity rather than the sum transferred. We have now implemented a new service in which an actuarial partner will provide both an Acturial report and manage the transfer process for $AUD1500 inclusive of GST. For more information, or to make an inquiry, please go to our section on Pension Transfers.

Complete the Superannuation Inquiry form