Have you spent time working in Australia and accumulated a significant superannuation pot?
If you are, like me, an Aussie living in the UK, or maybe you’re a Brit returning to the UK after living in Australia, then your retirement planning is much more complex as a result. 45% of my pension value is in Australian superannuation and 55% in UK pensions.
Weaving together a retirement plan is much more challenging – particularly if you’re retiring to the UK. You have to consider the new UK pension freedoms and the various ways that you can draw an income. You also have to take into account the various Australian income options, different retirement ages for each country, and two very different taxation systems.
If I was planning to retire to Australia, then the solution would be much simpler: transfer my UK pension to Australia and take it out tax free. However, superannuation cannot be transferred to a UK pension making retiring to the UK more complex. Here’s why.
1. There is a fundamental difference in pension taxation when taking income: UK pensions are taxed whereas taking income from Australian superannuation is tax free for Australian tax residents. However, for UK tax residents, Australian superannuation income will be fully taxable in the UK except…
2. In certain circumstances, it is possible to extract lump sums from Australian super in a very tax-efficient manner. This could be a substantial financial planning opportunity for those who spent considerable time working in Australia but retire to the UK.
3. UK pension access is normally available at 55 years of age regardless if you are still working. However, in Australia, that is 60 for tax-free access if conditions of release are met (i.e. you’re fully retired). Unfettered tax-free access is available at 65 in Australia – you can still be working.
4. Even if you are yet to draw an income, it is key to ensure your portfolios in both countries are invested to provide the best returns based on your future income strategy and attitude to risk.
5. Both systems have various but different methods of drawing income as lump sums or income streams, some of which are tax free.
6. Superannuation is invested in Australian dollars, so currency risk is a factor in planning. Transferring currencies has a cost so erodes some of the value. Using a currency provider is must, rather than relying on bank transfers.
7. There are special circumstances where pensions and superannuation can be accessed earlier than retirement age in both countries: permanent incapacity, terminal illness, or compassionate grounds. Taxation of both varies so professional advice is needed.
Creating a retirement income plan needs to weave together these variables to create a tax-efficient growth and income plan. Minimizing the tax paid earlier on maximises what stays invested for longer. There are many scenarios and these need to be based on your circumstances and it does represent a good financial planning opportunity.
Getting it wrong may be costly as tax may range from 0% to 45%. It pays to plan well-ahead.
The complexities suggest professional help is wise. At bdhSterling we have licences in both the UK and Australia for full financial planning and can help you develop a clear plan. Feel free to contact us for a no obligation chat about your circumstances.
01372 724 249
