7 key considerations if you’re thinking of transferring your UK pension to Australia

Category: Australia & News

If you’re a Brit working in Australia it’s likely that, in addition to any super fund you’ve built up, you also have an accrued pension, or pensions, back in the UK.

If you’re planning to retire in Australia these will obviously form part of your retirement income.

Because the different funds will be subject to different legislation and taxation regimes, you may well want to consider transferring your UK pension to an Australian super.

Another compelling reason for doing this is that there are substantial tax advantages.

Read on to find out what your options are and some of the key issues you need to consider before deciding to transfer.

1. The decision to transfer isn’t straightforward

As with a lot of issues in financial planning, there is no “one-size-fits-all” solution. That’s certainly the case when it comes to transferring your UK pension.

It’s not a straightforward decision and sometimes transferring may not be the right thing to do.

There may also be times when a transfer is not possible. You’ll find out more about each of these issues later in this article.

2. There are big potential tax advantages

If you’ve contributed to a pension in the UK you’ll have benefited from a favourable tax environment designed to encourage British people to contribute to their own pension.

The UK government pay tax relief on most personal contributions. Basic-rate relief is added at source, and then you can claim further tax relief at your marginal rate through your annual tax return.

You will, however, pay Income Tax on money you take out, aside from 25% of your fund that you can take free of tax.

The situation is effectively reversed with a super in Australia; you pay tax on your contributions, but all withdrawals are tax-free.

As you can see, by transferring your UK pension to a super, you’ll be creating a very advantageous “win-win” scenario for yourself – effectively taking tax-free income from a fund that was accrued tax-efficiently in the first place.

3. It can be advantageous to have all your pension funds in one place

Transferring your UK pension fund, or funds if you have a series of UK arrangements, into a super gives you the advantage of having your entire pension fund in a single plan.

This will mean that you aren’t having to monitor a series of different pots that could be in different currencies and invested in different funds.

It will make it easier to keep track of your overall fund value and make investment decisions accordingly.

When you come to finally start drawing from your super, you’ll have a better handle on the income you’re taking and the value of your residual fund.

4. You may not be able to transfer straight away

One important factor to bear in mind if you’re considering transferring your UK pension fund or funds to a super is that you can’t do this until you’re aged 55.

However, there’s a step you can take if you’re affected by this age limit which can help give you a level of control over your funds until such a time as you can complete the transfer to an Australian fund.

By transferring any accrued pensions in the UK into a self-invested personal pension (SIPP) you can immediately consolidate all your UK pensions into a single arrangement.

You’ll have full control over how your fund is invested, and many UK SIPP providers offer access to Australian investments.

As a result, you’ll be in a good position to set the ball rolling on the final transfer once you reach 55. You’ll then be able to start a transfer to an Australian super using a qualifying recognised overseas pension scheme – known as a “QROPS”.

5. You may not be able to transfer at all

Before thinking about transferring, it’s worth finding out at outset whether you can actually transfer all the pension funds you’ve accrued. Not all UK pensions can be transferred to a super. These include:

  • Government-backed defined benefit (DB) schemes, such as the NHS pension scheme
  • Any company pension scheme in the PPF (Pension Protection Fund)
  • A company scheme from which you’re already drawing a pension
  • Any annuities you’ve already purchased with a life insurance company.

You can’t transfer your UK State Pension, although this can still be paid to you even if you’re living in Australia. A key point to note, however, is that it will not increase each year.

6. Transferring might not be the best thing to do

In certain circumstances, transferring your pension funds from the UK to Australia may not be the best course of action.

Such circumstances could include when:

  • You’re uncertain where you’ll be living in the future and may well be returning to the UK.
  • The charges you’ll incur for transferring may be prohibitively high.
  • You may be comfortable with your existing arrangements.

We would stress at this point that expert financial advice is crucial when it comes to such an important decision.

The legislation governing pensions in both the UK and Australia is subject to change. Mistakes can prove irreversible and costly and may well leave you facing an unexpected tax charge.

7. The actual process of transferring your UK pension

As you’ve already read, the process of transferring pension benefits from the UK to Australia involves transferring to a QROPS.

A QROPS is an overseas pension scheme that meets certain stringent requirements set out by HMRC and is therefore eligible to accept a transfer.

By transferring your UK pension to an Australian QROPS, you’ll move your fund so it’s under Australian financial jurisdiction. It can then be denominated in Australian dollars which removes future currency risk.

The process of transferring to a QROPS isn’t straightforward and we’d reiterate the importance of expert financial advice if you’re considering such a step.

Get in touch

If you have any queries about transferring your UK pension to an Australian super please get in touch with us. As dual-registered financial planners, we’re uniquely placed to help you.