How to Transfer a UK Pension to Australia?
The portability of an overseas pension is a key issue that we see Australian expats face with time and time again and those Australian expats who have lived and worked in the United Kingdom, and who have a UK pension, are no different. The key issues are always centered around:
- Can I and how do I transfer it?
- Is there any penalty tax that I may pay on it?
- What tax applies on both sides (transferring from and receiving)?
It is only natural that Australian expats will want to consolidate their overseas pension to an Australian superannuation fund when they return to Australia for a number of reasons, including the allowances that the Australian Taxation Office provides for repatriation of an overseas pension, and the ease of managing your retirement and pension account in one jurisdiction.
There are a number of types of UK pension structures and they will fall under two categories;
- Defined contribution pension
- Defined benefit pension
Defined Contribution UK Pension
A defined contribution UK pension is based on how much has been paid into your UK pension account which is determined by your employer contribution rate and your personal contribution rate. Under the defined contribution pension, you’ll usually be in one of the following categories;
- Executive pension plan
- Group personal pension
- Master trust pension
- SIPP (Self invested personal pension)
- SSAS(Small self administered schemes)
- Stakeholder pension.
These sorts of pension schemes can have different governing rules to abide by which can sometimes make it increasingly difficult to do a UK pension transfer to Australia.
Defined Benefit UK Pension
A defined benefit pension is based on your salary and how long you’ve worked for your employer. It essentially is a promise by the UK employer to make a payment, whether that be in the form on a specified recurring UK pension payment, lump-sum payment or a combination of the two, when the employee is due to retire. The amount that is paid is calculated using a formula that is based on the employee’s earnings whilst under the employ of the company, how long they have worked for that company and their age.
Changes To The UK Pension Laws
On the 6th April 2015, there was an amendment to the UK pension law regime which effectively closed transfers from UK pension funds into Australian superannuation funds unless the Australian super fund did not allow a payment of a pension before the member reaches age 55 or retirement on the grounds of ill-health as defined under the UK pension legislation.
This resulted in all but one Australian superannuation fund being removed from the Recognised Overseas Pension Scheme (ROPS) list managed by HMRC.
Since the 2015 rule changes we have seen a number of Australian superannuation funds added to the ‘Recognised Overseas Pension Scheme’ (ROPS) list. In order for this to occur a minimum number of requirements to transfer a UK pension to an Australian Super fund must be met:
- You must be 55 or over; and
- Have a Self-managed super fund(SMSF) and be a registered ROPS on the HMRC list; or
- Be a member of an Australian superannuation fund which is a registered ROPS on the HMRC list
More recently on the 9th of March 2017 the UK government introduced a new regulation on UK pensions which stated that should a UK pension be transferred to an offshore pension scheme, in a country like Gibraltar or Malta, and the pension holder did not reside in that country, then a 25% tax charge would be levied on that UK pension.
HMRC ROPS List
When reviewing the HMRC ROPS list you will note that there are not many of the standard Australian superannuation funds listed on there. This is mainly due to the trust deed that governs the management of these super funds doesn’t comply with the rules outlined by the HMRC for the super fund to be a Recognised Overseas Pension Scheme.
For an Australian super fund or SMSF to accept a UK pension transfer it must state in the trust deed that the fund is restricted to members whom are 55 and over. It will also need to go through the approval process with the HMRC and be registered on the HMRC ROPS list.
How Does an Australian Expat Transfer Their UK Pension?
If you have the correct super fund in place, you must ensure that you do not go above the required Australian superannuation contribution cap limits otherwise you could incur penalty tax. From 1 July 2017, the non-concessional contributions caps are $100,000 per year and individuals whom are under the age of 65 will be eligible to utilise the 3 year bring forward rule ($300,000) which essentially means that you may make 3 years worth of non-concessional contributions in one year but then you will not be able to make any further contributions in years 2 or 3.
There are other areas which can create further headaches for UK based Australian expats. As an example if your transferring a balance value over £30,000 your UK pension provider might require you to obtain independent financial advice in the UK before releasing the funds which Atlas Wealth Management can assist you with.
It is recommended that prior to transferring any funds you seek specialised Tax and Financial advice on the transfer of your UK pension. Some major Australian based financial services companies are legally bound to not being able to provide advice to Australian expats so please be sure that their Australian Financial Services License covers this area.
General Advice Disclaimer
The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your Atlas Wealth Management Authorised Representative before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Atlas Wealth Management nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.