UK Pension Transfers
If you have ever lived and worked in the United Kingdom, you will likely have accrued retirement savings in a UK pension scheme. A pension transfer allows you to access your UK retirement savings by moving them to an Australian super fund
How we can help?Can I transfer my UK pension to Australia?
It is possible to transfer your UK pension savings to an Australian superannuation fund. However, the Australian pension scheme must qualify as a QROPS in order to accept a UK pension transfer.
There are some other things to be aware of before considering a transfer. For example, you can only transfer pension funds valued at £20,000 or more.
Due to the rules around accessing your Australian superannuation scheme, you need to be 55 years of age before you can move your UK pension.
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What is a QROPS?
QROPS stands for Qualifying Recognised Overseas Pension Scheme.
HMRC introduced the QROPS programme in 2006 to help to simplify the process for UK residents wanting to move their pension pot overseas.
A QROPS is authorised to accept transfers from UK pension schemes. For an overseas scheme to be classed as a QROPS, it must meet specific criteria set out by HM Revenue and Customs (HMRC).
The scheme must meet the following requirements set out by UK tax law to qualify as a QROPS:
- Be available to residents in the country the scheme was established
- Be registered as a pension scheme with the countryʼs tax authority
- For Australia, the superannuation fund must comply with rules governed by the Australian Taxation Office (ATO)
- Restricting payments to members over the age of 55 (there are very limited circumstances when this does not apply)
Restricting payments to members over the age of 55 is an important point. Because Self-Managed Super Funds (SMSFs) restrict access, they are the only super funds that meet the QROPS requirements.
As they have unique trust deeds that govern how they work, SMSFs can restrict payments to people over 55. Other funds, such as an industry and retail super fund, can not impose such restrictions. As a result, they canʼt satisfy the criteria set by HMRC.
Be aware that transferring to a scheme that is not a QROPS is risky.
If you transfer your pension savings to an overseas scheme or fund that is not a QROPS, it will likely be classified as making an unauthorised payment.
Doing so could result in an unauthorised tax charge of 55% with the possibility of additional penalties. You should also be aware that such transfers are typically unregulated. If something goes wrong, you won’t have any grounds for compensation.
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Which UK pensions can I transfer to Australia?
A QROPS is capable of accepting most types of UK pensions, including:
- An occupational pension scheme
- A defined contribution scheme
- A defined benefit scheme
- A Small Self-Administered Scheme (SSAS)
Be aware that defined benefit (DB) schemes typically offer generous benefits. By transferring, you could lose those pension benefits.
Certain pensions can not be transferred, such as the following:
- A UK State Pension
- Civil service pensions
The ATO classifies a transfer as a contribution, not a rollover. As a result, members need to ensure that the transfer complies with the Australian contribution rules for non-concessional contributions. For more information, visit the ATO website.
What about my UK State Pension?
Although you can’t transfer a UK State Pension, you have a couple of options. You can have it paid into your UK bank account if you still have one. Alternatively, it can be paid into an Australian bank account.
Remember, your UK State Pension is based on your National Insurance contributions (NICs). Any gaps on your NICs record can mean you get a reduced amount, or you may not receive any State Pension.
You can check your National Insurance record via the UK Government website. Not only can your record here, but you can also make voluntary contributions. Doing so will fill in any gaps and can increase the amount of State Pension you receive.
How are pensions taxed in Australia?
The UK and Australia have a double taxation agreement in place. This means you won’t be taxed on the same income twice.
If you transfer your UK pension balance to an approved Australian QROPS, it’s not taxed in Australia provided that:
- It is received within six months of the member becoming an Australian resident or;
- Within six months of their foreign employment being terminated.
Other tax benefits include:
- From the age of 60, if a 15% rate of tax has been applied to a foreign super transfer, income benefits are often tax-free
- UK pensions that you move to an Australian fund also avoid UK income tax when you die
Be aware that there are some drawbacks in regards to tax. For example, the majority of transfers happen after the first six months. If this is the case, you could face additional charges and taxes.
What is the process?
The transfer process will vary depending on the interaction with the individual UK pension scheme, but broadly speaking:
- Members request a transfer to their new country of residence via their pension provider
- Scheme managers will provide advice and information needed to make the transfer to the member. Due diligence checks will also be carried out
- The UK scheme manager establishes if the transfer is liable for the overseas transfer charge or any other taxes
- Once the paperwork is signed, your UK pension will be transferred to the Australian scheme
The process of transferring your UK pension is very manageable, provided you seek professional advice and guidance. A specialist can ensure you get the right financial advice based on your personal circumstances when it comes to pension transfers.