frequently asked questions
What is a Pensions Transfer?
Who can transfer?
What can I transfer?
What happens if I decide not to transfer?
How much can I transfer into Australia?
How long will it take?
Do I pay tax on the money I bring to Australia?
How much will it cost, and what do I get for my money?
What are the benefits?
What will the evaluation report tell me?
What currency will the money be transferred in?
Can the money be transferred electronically?
What is a QROPS, and can you arrange one?
What if I am already drawing a pension in the UK?
Do I need to be working to transfer my monies?
What is a Pensions Transfer?
A Pensions transfer is where it is possible to move your pension fund monies, directly from a fund in one country to your Australian fund.
Who can transfer?
The rules regarding the transfer of retirement monies are very specific to individual countries. For the UK it is possible to transfer UK retirement monies to an Australian fund provided that fund has QROPS status with HMRC. It's important that the person is a permanent resident and intends to remain so because transfers out of Australia are virtually impossible until a condition of release is met (normally retirement).
What can I transfer?
Before the UK scheme has commenced to pay a pension most benefits including deferred, preserved and paid up benefits can be transferred. This includes protected and non-protected rights – but the guarantees are lost upon transfer. Many pensions, especially those being accessed via income draw-downs can be transferred, but not those being paid by an annuity. Annuities could only be transferred to another EU life company. In addition State Basic and additional State pension does not have an account balance to be transferred and these entitlements must be accessed as an income stream.
What happens if I decide not to transfer?
We need to consider the situation both before you reach retirement and when a pension is being accessed from an overseas source.
Australians are taxed on worldwide income and the current rules in most cases the increase in the value of the foreign investment fund is treated as an assessable amount. The exceptions are amounts left in a company pension scheme and those with a value under $50,000. These are assessed when the benefit is accessed. The last federal budget announced that all of the foreign investment fund rules will be reviewed shortly with a view to simplification.
Consequently this area is likely to see change over the next twelve months.
If benefits are left overseas which are used to start a pension they are treated and taxed differently to those sourced from Australian funds. Pensions and lump sum benefits sourced from Australian monies for people over the age of 60 are tax free. i.e. taxed under the provisions of the Income Tax Assessment Act 1997. Those sourced from overseas are still taxed under the ITAA 1936. This act provides for the pension to be added to personal assessable income with a deduction. The deduction is based on personal contributions divided by life expectancy at the time the pension commenced. It will be observed that there are major tax advantages to having transferred the monies to Australia in all cases other than those of individuals with very low personal assessable income.
How much can I transfer into Australia?
Overseas transfers are assessed against the non-concessional contribution cap if the individual pays the transfer tax personally. Where an election is made to transfer the tax liability on the growth component since residency to the super fund, only the balance of the transfer amount excluding the growth component is counted against the non-concessional contribution cap. An individual has a non-concessional contribution cap limit of $150,000 p.a. if they are under the age of 65 or between 65 and 75 if they meet the work test. Only those individuals below the age of 65 can borrow forward two years cap to make a total of $450,000 that can be brought across as a single transaction. Superannuation funds are prohibited from accepting contributions in excess of this amount as a single transaction to try and ensure that individuals are not subject to excess contribution tax. It's important in assessing the level of contribution cap available to take into account other non-concessional contributions the individual has or may need to make. The limit applies per person, not per transaction.
How long will it take?
Each Fund differs depending on the original provider, but it can take anything from 3 to 9 months.
Do I pay tax on the money I bring to Australia?
Provided the transfer is below the non-concessional contribution cap limit, if the transfer takes place within 6 months of you becoming a resident in Australia, there is no tax to pay. If 6 months has elapsed you will be taxed on the growth of the fund from the date you became a resident. These amounts have special rules for the exchange rates to be used to convert into an Australian dollar liability. Any contributions made since residency are also excluded from the growth component.
How much will it cost, and what do I get for my money?
A full transfer will cost you no more than $1500*, however you may not need the full service, therefore we have designed our services so you only pay for what you need.
* This is per person and covers the transfer of up to 2 UK funds.
What are the benefits?
Australian retirement tax concessions are focused on the retirement phase and less so on the accumulation phase. This is the reverse of the situation that applies in most overseas countries. Consequently in most situations a transfer close to retirement has a significantly beneficial tax minimisation affect.
Normally it is wise to match the assets and the country where the benefit is being paid in order not to be exposed to adverse exchange rate variations.
Australian benefits can be accessed in a far more flexible manner than in most other jurisdictions. For example, benefits as 100% lump sum are allowable in Australia whereas in most other countries there is a limit typically around 25%.
Factors which might work against transferring a benefit include where the transfer value often is less than the true value of the benefits taking individual circumstances into account and far more favourable annuity purchase options are available overseas if you want to access your benefits in this format. The Australian annuity market is virtually non-existent.
What will the evaluation report tell me?
The evaluation report will estimate growth since residency in Australia and check that excess contribution tax is not likely to be an issue. This will provide some of the building blocks for the decision on whether to transfer or not. It will however not cover the myriad of financial planning issues that need to be considered with the help of a independent financial planner.
What currency will the money be transferred in?
This depends on the UK funds, but more often than not the funds are transferred in Sterling and exchanged into dollars by the receiving bank.
Can the money be transferred electronically?
This depends on the UK funds, but some do offer an electronic transfer, and sometimes for a fee. Most funds will be sent using a sterling cheque, which can take up to 6 weeks to clear.
What is a QROPS, and can you arrange one?
A QROPS is a Qualifying Recognised Overseas Pension Scheme, UK pensions funds will not transfer to any receiving fund unless it has QROPS approval. It's simple to obtain, and we can help you. The QROPS provisions are aimed at ensuring the benefits are not released early overseas in an inappropriate manner.
What if I am already drawing a pension in the UK?
Provided you have an Australian non-concessional contribution cap it may be possible to transfer some UK retirement income streams. The ones that certainly cannot be moved are the State Basic pension, the alternate state pension and life office annuities. Virtually all unsecured income drawdown pensions from SIPPS can be moved but the maximum pension conditions of the UK Finance Act 2004 will need to be fulfilled for the usual five full UK tax years since migration. Pensions from company schemes will depend on the rules of the scheme more than any legislative constraint. Enquiry needs to be made on a case by case basis to ascertain what is feasible.
Do I need to be working to transfer my monies?
Under the age of 65 the answer is no. From 65 to 75 the work test needs to be met in order to have a non-concessional contribution cap. Transfer benefits are tested against this cap. The work test is defined as 40 hours of gainful employment in any 30 consecutive days. Once the work test condition is met the ability to accept contributions exist for the whole financial year.