Australian QROPS Funds: If you have lived and worked in the UK and replaced the rain with the sunshine, you may have money invested in a UK Pension scheme.
Transferring benefits from a UK pension scheme to an Australian QROPS fund can be complex as it involves the application of laws of both Australia and the United Kingdom.
Not only are transfers restricted to individuals from age 55, but a range of other factors including the application of the non-concessional contribution cap, and potential ongoing UK reporting, and tax consequences need to be considered.
Although it can be a complex and time consuming exercise, many benefits can be achieved by transferring your UK Pension funds to an Australian QROPS fund, including:
- Having your retirement funds in the same country where you live and plan to retire
- Having more control over your retirement funds and how they are invested for your retirement
- Having more flexibility over the drawdown of your retirement funds
- Having more control and flexibility over your retirement funds for your spouse or family members if you were to pass away leaving your funds subject to the UK Pension scheme rules
- Potentially achieving a greater tax-effective outcome for your retirement
- If you transfer funds within 6 months of becoming an Australian resident, the transfer of funds could be tax-free
- UK pension benefits transferred to an Australia QROPS fund will generally be tax free when benefits are paid as a lump sum (where permitted) or as a pension (income stream) once satisfying a condition of release under Superannuation legislation
- Your UK Pension funds will not be subject to UK Income Tax charges upon death
We are proud to say we have the expertise in assisting our clients with various UK pension fund transfers to an Australian QROPS fund, where that is the most appropriate strategy for their situation.
There are also potential risks and other considerations involved which are detailed below and highlights the importance of receiving specialist advice tailored to your personal situation.
Depending on the type of UK pension scheme you have, you may lose entitlement to defined retirement benefits if you transfer and there is no guarantee that the transferred funds will provide you with an income for your lifetime.
If you withdraw benefits transferred from a UK super scheme or transfer the benefits to another Australian superannuation fund within 10 years of the funds being transferred from the UK, you may be liable to UK tax on the benefit you receive or transfer.
If you have been an Australian tax resident for more than six months when you transfer your UK pension funds, you will pay tax on the growth that has occurred in your UK pension account since the time you became an Australian resident. You may elect to have this tax paid by your new super fund on your behalf.
Currency fluctuations can impact the actual value at time of transfer.
Funds transferred are subject to Australian superannuation legislation and preserved until a ‘condition of release’ is met.
Funds transferred are also subject to market volatility and there may be potential for capital loss depending on the investments recommended.
About Australian QROPS Funds and the UK Regulator
UK pensions and taxation are administered by Her Majesties Revenue and Customs (HMRC).
Even though a person may no longer be a UK resident to tax purposes, there are ongoing UK reporting and tax obligations that extend for many years after the funds are transferred to an Australian superannuation fund. Ongoing reporting obligations are largely dependent of when the funds were transferred from a UK pension scheme and the time that has elapsed since the individual was last a UK resident for tax purposes.
When money is withdrawn from a UK pension scheme, UK tax may apply. Where an unauthorised payment occurs, tax of up to 55% may apply.
However, in some circumstances transferring an interest in a UK pension scheme to a foreign superannuation fund or pension scheme can be arranged in such a manner as to avoid the payment of UK tax at the time of transfer.
For this to occur, the fund to which the UK benefit is to be transferred must be registered with HMRC as a Qualifying Recognised Overseas Pension Scheme (QROPS).
To be included on the Australian QROPS fund list, a superannuation fund must agree to providing ongoing reporting to HMRC and the fund must restrict the payment of benefits to members aged 55 or older, except in instances of retirement due to ill-health.
Age 55 Restriction
As Australian superannuation legislation permits benefits to be released prior to age 55 in some circumstances (e.g. severe financial hardship, compassionate grounds etc.) Australian funds wishing to be included on the Australian QROPS fund list need to limit membership of their fund to people aged 55 or older.
There are currently a couple of hundred Australian superannuation funds included on the QROPS list. Except for one, all are self-managed superannuation funds that have specifically restricted membership to people aged 55 or older.
The only APRA regulated fund on the Australia QROPS fund list, Australian Expatriates Superannuation Fund – a division of the Tidswell Master Superannuation Plan, also restricts membership to people aged 55 and older.
Even though former UK residents under the age of 55 are no longer able to transfer their UK pension fund interest to an Australian superannuation fund, they may have the option of transferring it to a Self-Invested Personal Pension (SIPP) in the UK. This may be a suitable option for those wishing to take more control over their UK pension and the way it is invested.
What types of Pension Interests can be Transferred?The three common forms of UK pension arrangements are:
- the State Pension,
- defined benefit schemes, and
- defined contribution (accumulation) schemes.
Individuals are unable to transfer their State Pension rights and an interest they have in an unfunded defined benefit scheme (e.g. NHS Pension Scheme) to a QROPS.
Members of funded defined benefit schemes may be able to transfer the cash value of their scheme to a QROPS however, they are required to seek UK independent financial advice before the transfer can occur. A UK pension scheme may refuse to allow the transfer of a defined benefit interest to a QROPS.
For practical purposes, the most common transfer requests relate to defined contribution schemes.
The following comments provide a general overview of transferring a UK pension scheme benefit to an Australian superannuation fund. This is a complex area of cross-jurisdictional tax and superannuation fund law. If a more detailed understanding is required, specific specialist advice should be obtained.