7 tips for dealing with your UK pension if you’re planning to return to Australia

Category: News

If you’re currently living in the UK but are planning to return to Australia at some stage in the near future, how you manage your pension arrangements could be crucial in determining your wealth when you retire.

If you’ve worked in the UK for any reasonable length of time, it’s likely you’ll have accrued a decent-sized pension fund, in one or more different arrangements.

In this article, read about some of the key issues for you to consider regarding what to do with your UK pension before you head off.

1. There are different tax regimes governing UK and Australian pensions

One of the areas of significant opportunity involves UK pensions and Australian superannuation (“super”) because the tax works very differently for each.

In Australia, superannuation contributions are concessionally taxed. Investment growth is also taxed but, when taking the super out as income, it is tax-free.

In contrast, in the UK, neither contributions nor investment growth are taxed. In addition, the tax relief offered on contributions make them an attractive savings and investment option.

2. You could create a “best of both worlds” scenario for your pensions

By maximising your pension contributions in the UK before you return to Australia, you can create a “best of both worlds” scenario.

You’ll get tax relief at your marginal rate when you make contributions, and then, after you have transferred your UK fund to an Australian super, you can take income from the fund free of tax.

Given this, it’s really worth trying to maximise contributions before you return to Australia.

Four key facts to remember:

  • Each year, you can pay a maximum of 100% of your annual earnings or £40,000, whichever is lower, and benefit from tax relief.
  • It’s possible to carry forward any unused allowances from previous years.
  • If you’re a basic-rate taxpayer, you could be able to use a salary sacrifice arrangement through your employer to make pension contributions even more tax-efficient.
  • Remember your spouse or partner can make contributions too. Even if they aren’t earning, they can pay up to £2,880 net, and will still be eligible to receive basic-rate tax relief.

If you’re looking to maximise contributions, we’d strongly recommend that you speak to a financial adviser who can support you and ensure you manage your contributions effectively.

3. Consider consolidating your pensions into a single plan

If you have two or more pension arrangements with different providers, it’s worth considering consolidating them into a single arrangement.

This will give you a single view of your UK pension fund, and make the fund easier to manage, rather than having to keep track of several different plans.

It will also make the ultimate transfer to an Australian super a much more straightforward process.

If your spouse or partner has more than one UK pension arrangement, you should also consider a similar consolidation exercise with their funds.

You should speak to a financial adviser about consolidating as some types of pensions offer guaranteed benefits that you would lose if you transferred.

4. Start planning your transfer to a super fund

When you ultimately transfer your accrued UK pension fund to a super, you’ll use a qualifying recognised overseas pension scheme (QROPS) to facilitate this.

A QROPS is an HMRC-recognised pension scheme that can accept a transfer of UK pension funds.

For an overseas scheme to qualify for QROPS status, it must meet certain strict criteria set by HMRC. If you transfer your pension to a plan that is not a registered QROPS, you will face a significant penalty.

We would therefore strongly recommend that you speak to an experienced financial adviser regarding the transfer process – even if it is still some way off. Mistakes can be costly.

5. You may have to wait before you can transfer

To transfer your UK pension to a QROPS, you must be aged between 55 and 75. The fund will then be accessible to start taking income from when you reach either 60 or 65, depending on whether you are still working.

It’s therefore possible that you may not be able to transfer to a QROPS for some time.

It’s also worth bearing in mind that you need to be resident in Australia before you transfer. Otherwise, the transfer will be subject to a 25% overseas transfer charge.

6. How you invest your money is important

If you are not yet 55, you’ll need to leave your pensions invested in the UK after you return to Australia.

You should therefore ensure the fund is invested to work hard for you while waiting for the time it can be transferred back to Australia.

How you invest will be dependent on several factors such as timescale, the amount in your fund, and your attitude to investment risk.

Again, we would strongly recommend you speak to a financial adviser regarding your investment choices. They will help you put an appropriate portfolio together to maximise investment growth potential while you wait to transfer.

7. Don’t forget your UK State Pension

If you’ve been living and working in the UK for more than ten years, it’s likely that you will be entitled to receive a UK State Pension.

You will still be eligible to receive your State Pension, even if you’re living in Australia. However, the pension you do receive will not increase annually.

You can check how much State Pension you’ll be entitled to, and when you might receive it, on the HMRC website.

Get in touch

Get in touch if you believe you would benefit from advice regarding transferring your UK pension.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

The interest rates could also affect your pension income at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.