6 key points to consider if you’re transferring your super fund to the UK

Category: News & United Kingdom

If you’re an Australian now living in the UK and planning to retire here, it’s likely that your retirement fund will include a significant amount of money in a retained super fund back in your country of birth.

The same could equally apply if you’re a Brit who worked in Australia for a time before returning home.

Clearly, if you’re planning to return to Australia at some stage, then you can leave the super invested, and use it to provide you with retirement income when you return.

But if your long-term plan is to retire in the UK, you will need to consider how you can draw money from your super fund and do so in the most efficient way possible.

Read on to discover some of the key issues that you should take into account if you have money in an Australian super fund and are planning to retire in the UK.

1. There are some key differences between the UK and Australian pension regimes

As you’ll be aware, you pay a concessional rate of tax on your contributions into a super fund but can then take income and lump sums free of tax.

UK pensions are designed to be very tax-efficient while you are making contributions. You benefit from tax relief at your marginal rate of Income Tax, which makes them an attractive savings vehicle.

However, you’ll pay Income Tax on whatever you take out – lump sums or income – aside from a 25% tax-free entitlement.

2. Accessing your super in the UK

Whereas it is usually possible to transfer your UK pension fund to an Australian super by using a qualifying recognised overseas pension scheme (QROPS), the reverse does not apply. 

This means that retiring to the UK and taking retirement income from your super can be a complex process. 

For UK tax residents, Australian superannuation income will be fully taxable in the UK except in certain circumstances.

However, it is possible to extract lump sums from your Australian super in a very tax-efficient manner, and then put together an investment portfolio from which you can draw income as tax-efficiently as possible.

This process is not necessarily straightforward, and it’s possible to make a mistake that could result in you being subject to an unwelcome tax charge. Because of this, we would strongly recommend that you seek expert advice before drawing any sums from your super. 

3. Your investment strategy is all-important

Clearly, how you invest the money you draw from your super fund will have a key bearing on your future wealth. Indeed, it could be the difference between a comfortable retirement without having to worry too much about your income, and having to be careful how you plan your income for fear of outliving your fund.

Just leaving your lump sums in a bank or savings account makes little sense if you’re looking for any kind of investment return on your money. It also follows that the better return you get, the longer your fund will last. 

Even with recent rises in UK interest rates, inflation is likely to reduce the value of your cash savings over time. You could also end up paying tax on the interest your money does earn.

Because of this, it is advisable for you to consider putting together an investment portfolio, using the range of tax-efficient vehicles and investment opportunities available in the UK.

4. There are several tax-efficient investment options for your super lump sums

How you put together your investment portfolio will depend on a series of factors. These could include:

  • Your personal circumstances
  • Your attitude to investment risk 
  • How long the money will remain invested 
  • How much you will want to take to provide an income stream.

You should also bear in mind that these different factors could be subject to change, so you should regularly review any investment plan you put together to ensure it remains aligned with your needs.

There are a variety of tax-efficient investment options and exemptions. For example, each individual can invest £20,000 a year (2023/24) into an ISA. You will not pay Income Tax on the interest or dividends you receive and any profits from your ISA investments are free of Capital Gains Tax (CGT). 

On top of that, you also have an annual CGT exempt amount. This means that any investment gains that are covered by the annual exemption are not chargeable to CGT. The annual exemption is £6,000 for the 2023/24 tax year.

Another option is to take advantage of one of the schemes offered by the UK government to encourage investment into new businesses. 

These schemes, such as Venture Capital Trusts and the Enterprise Investment Scheme, offer different levels of tax incentive depending on how long you invest for. Be aware, however, that such investments can carry a high element of risk, and you should take professional advice before considering this type of investment.

5. Currency risk is an ever-present threat

If you are transferring substantial amounts from Australian dollars into UK sterling, currency risk will clearly be a factor.

Given how currency exchange rates can fluctuate, you should make every effort to avoid the erosion of some of your accrued value, especially as you may well be transferring substantial sums of money from your super fund to the UK at different times.

Using a specialist currency provider, rather than straightforward bank transfers, can help reduce the cost of transferring.

They will be able to mitigate the effect of fluctuating exchange rates by using exchange mechanisms such as stop-loss orders and forward orders to ensure you get the best possible value.

6. It’s imperative to plan ahead

Using lump sums from your super to create a diverse portfolio, which will provide you with a tax-efficient retirement income, can be a complex process.

There are many different variables that you need to consider. You should also be prepared to make changes to your portfolio as your personal circumstances, and financial needs, change.

At bdhSterling we have licences in both the UK and Australia for full financial planning and can help you develop a clear plan if you’re intending to retire in the UK.

Get in touch to find out more.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. 

All contents are based on our understanding of HMRC and ATO legislation, which is subject to change.