Annus Horribilis for UK Pension Transfers

[Andrew Williams]

Well it seems that between HMRC and the Liberal/National Coalition they really do not want UK expats transferring their pensions from the UK to Australia.

 

Part one of this story was brought about by changes out of the UK effective March and 6 April 2015 as follows:

 

 

 

• UK Pensions that fell into the category of UK government un-funded defined benefit schemes (these are schemes such as the NHS and the Police Pensions) could no longer be transferred to schemes that offer flexible benefits - Ban on UK pension transfers
  

 

 

Typically in Australia all of the QROPS schemes available at that time offered flexible benefits thus resulting in people with these pensions not being able to transfer them to Australia.

 

 

 

• The UK introduction of the ‘Pensions Age Test’ which essentially resulted in Australia losing its QROPS status overnight (this only became apparent on the release of the 1 July 2015 ROPS list - Australia lose QROPS status)
  

 

 

Since then however there have been avenues for certain people to transfer pensions to Australia - Pension Transfers for over 55s

 

Since around October last year limited direct transfers to Australia have been taking place for people who are over age 55 and who establish a SMSF and have it QROPS registered.

 

However Part two of this saga was brought about at the Australian budget last night when Treasurer Scott Morrison announced effective 7.30pm that evening.

 

 

 

• The current non-concessional contributions (NCC) limits (NCCs are in the main what UK transfers are classified as) would be removed and replaced with a lifetime non-concessional contribution (NCC) cap of $500,000.
  

 

 

Further all NCCs made on or after 1 July 2007 will count towards this lifetime cap (in other words contributions made retrospectively will be included towards this new cap).

 

Whilst it is too early to be able to strip back these proposals and be able to understand all of the implications that exist it does certainly look like it will limit further the ability for people to make a transfer directly to Australia from their UK pension without possibly incurring a substantial UK or Australian tax penalty.

 

So the criteria currently for anyone considering a direct UK pension transfer to Australia is:

 

 

 

• Be over age 55;
  
• Have established or will establish an Australian SMSF (that restricts membership to age 55s+)
  
• Obtain QROPS status for the SMSF
  
• Transfer in no more than $500,000 as a Non-Concessional Contribution (including any NCCs made since 1 July 2007).
  

 

 

 

Please note though that having more than $500,000 does not automatically mean that a transfer cannot happen there is more to it than this and it could still be possible to transfer directly to Australia (if over age 55) as it will also depend on your length of residency.

 

This area has always been extremely specialised and complex but now more so than ever before.

 

Regards

 

Andy

[Bibbs]

Cheers for the Update Andrew.

 

Quick question (if that's okay).

 

I'm in my 30's and have about $150,000 in 2 private pensions in the UK.

I've been here 5 years now, and would like to transfer them to Aus.

 

Is it straight forward?

 

I've got the forms from one for the transfer, but I never get replies to letters/emails from the other.

[Andrew Williams]

Hi Bibbs

 

No it isn't I am afraid....technically unless you are a member of the limited government super schemes on the ROPS list: https://www.gov.uk/government/publications/list-of-qualifying-recognised-overseas-pension-schemes-qrops/list-of-recognised-overseas-pension-schemes-notifications then a direct transfer is not possible.

 

You could consider a transfer into a UK SIPP to consolidate and transfer at age 55 to Oz or a sideways transfer to a QROPS ex UK/OZ until such time as it is possible to transfer to Oz.

 

Both of these options will require UK FCA regulated financial advice, we can assist here if required through a UK partnership we have in place.

 

 

Regards

 

 

Andy

[Bibbs]

Thanks Andy, will keep it in mind.

[Jen78]

Hi Andy,

 

We are still in the UK waiting to apply for our visa. I have just read this and want to understand where were stand in regards to pensions. We have a private penson and work pension each. If we move to Oz next year, is it just a case of waiting until we are 55 and move our pensions over then? If we move them over do we avoid the massive tax implicaton than if we transferred them over before the age of 55 i.e losing over half in Uk tax?

 

We dont want to lose half of our pensions and are scared that if we transfer them over at 55 we will still get taxed heavily. I know we can't predict what legislaton will be in 15 years, but as it stands now I want to be assured that we can have all of our pension in 15 years time. We dont want to move and then when we come to retire, not have enough money after trying so hard to build up our pensons over here.

 

Any help and advise would be gratefully received, many thanks.

 

Jenni

[Andrew Williams]

Hi Jen

 

Yes at this stage transferring them before age 55 is likely to create a breach resulting in a tax charge.

 

It is possible at age 55 to transfer to Australia without breaching and so this avenue could be explored by you at the appropriate time (typically being when you have been in Australia for a long enough period of time to feel that you are settled and intend to remain).

 

For your information, they do not have to be transferred if they remain in the UK then you will not lose any of your entitlements to them.

 

Regards

 

Andy

[Jen78]

Thanks for the reply. So we can keep the pensions over here in uk, wait until we reach our entitlement age, draw it then and transfer the funds over as cash? That sounds the most straightforward way, have I understood it correctly? Thanks.

[Pommie]

Hi Andrew

 

I have my PR visa and are planning on coming out to Oz in 2017. I have a private pension pot with around $2.5m in it and was planning on transferring this over. I recall a ruling where you used to be able to transfer your pension tax free providing you do this within 6 months of taking up residency - this may have been superseded ?

 

Ideally I was wanting to take my UK pension (where you contribute into it tax free) and then transfer it to australia where you can draw it down (at retirement age) tax free... the cake and eat it option sounded nice...

 

I am early 40's, so the above 55 option is still a few years away.

 

What are the key implications or the best options either way ??

 

What tax rates are applied above the $500k limit on transfers ?

 

Also, if I transferred it into a joint account with my wife, would we have two lots of $500k tax free limits ?

 

thanks

 

Pommie

[Andrew Williams]

Thanks for the reply. So we can keep the pensions over here in uk, wait until we reach our entitlement age, draw it then and transfer the funds over as cash? That sounds the most straightforward way, have I understood it correctly? Thanks.

 

Hi Jen

 

Yes that is one option, alternatively from (currently) age 55 it is possible to transfer directly to an Australian Superannuation (Recognised Overseas Pension (ROPS)) currently possible via Self-Managed Super Fund.

[Andrew Williams]

Hi Andrew

 

I have my PR visa and are planning on coming out to Oz in 2017. I have a private pension pot with around $2.5m in it and was planning on transferring this over. I recall a ruling where you used to be able to transfer your pension tax free providing you do this within 6 months of taking up residency - this may have been superseded ?

 

Ideally I was wanting to take my UK pension (where you contribute into it tax free) and then transfer it to australia where you can draw it down (at retirement age) tax free... the cake and eat it option sounded nice...

 

I am early 40's, so the above 55 option is still a few years away.

 

What are the key implications or the best options either way ??

 

What tax rates are applied above the $500k limit on transfers ?

 

Also, if I transferred it into a joint account with my wife, would we have two lots of $500k tax free limits ?

 

thanks

 

Pommie

 

Hello Pommie

 

The 6 month ruling is still in place although this is a bit of a red herring really.

 

I think in your situation perhaps most pressing is the UK Lifetime Allowance (LTA): http://www.pruadviser.co.uk/content/knowledge/technical-centre/fixed-protection-and-individual-protection-2016/

 

You may have previously applied for protection?

 

Andy