8 key facts about accessing your super in the UK

Category: News

If you have spent time working in Australia, there’s a good chance you have accumulated a significant superannuation pot.

If you’re a Brit returning to the UK to retire, or an Australian who has been in the UK for some time and now plans to retire here, you’ll be looking to access your super fund to provide you with income.

However, accessing your super in the UK is far from being a straightforward process. There are issues, particularly around taxation, age, and investment choice, that mean that taking your super fund can be a complex process.

Here are eight key facts you should be aware of before you start accessing your super in the UK.

1. UK and Australia pensions are taxed differently

UK pensions are tax-efficient when you’re contributing but, aside from a 25% tax-free entitlement, anything you take out will be taxed as income at your marginal rate.

The Australian system is the mirror image of that. You pay tax on contributions into your super, but when you’re in Australia you can then take income and lump sums free of tax.

2. If you take your super as income in the UK, it’s taxed

If you take income from your super while you are resident in the UK it is taxed as income in the UK by HMRC. You are, however, entitled to take lump sums from your super and, this can be a more tax efficient way of accessing the benefits.

It therefore can make sense to take lump sums, then put together an investment portfolio from which you could take income as tax-efficiently as possible.

3. The age you can start taking your pension is different

For defined contribution (money purchase) pensions, UK pension access is normally available from 55 years of age regardless of if you are still working. This is rising to age 57 in 2028.

However, in Australia, the age is 60 for tax-free access if you are fully retired. Full access is available from age 65, even if you are still working.

4. When you take lump sums from your super, investing the money is crucial

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. Savings rates are at historic lows, which means that the inflation is likely to reduce the value over time. You could also end up paying tax on even the limited interest your money does earn.

It is therefore advisable to put together an investment portfolio, using the range of tax-efficient vehicles and investment opportunities available in the UK.

5. The choice of investment vehicle is equally important

How you put together your investment portfolio will depend on your personal circumstances, and factors such as your attitude to investment risk, how long the money will remain invested, and how much you’ll want to take to provide an income stream.

If you can minimise the amount of tax you pay when taking income initially, you’ll leave more invested and therefore maximise the investment growth you get as money remains invested for a longer period.

There’s no “one size fits all” process for this type of investment planning. Any plans will be specific to your individual circumstances.

There are a variety of tax-efficient investment options and exemptions. Two of the most well-known are:

ISA allowance

Everyone over the age of 18 can invest £20,000 a year (2021/22 tax year) into an Individual Savings Account (ISA). You pay no Income Tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax (CGT) and not included in your CGT exempt amount.

Capital Gains Tax (CGT) exemption

The annual CGT exempt amount is also known as the annual exemption. This is similar to the Personal Allowance for Income Tax in that the amount of investment gains covered by the annual exemption is not chargeable to CGT. The annual exemption is £12,300 for the 2021/22 tax year.

There are also a variety of other schemes offering tax-efficient investing, including schemes set up by the UK government to encourage investment in new businesses and commercial property.

Be aware, however, that such investments can carry a high element of risk, and you should take professional advice first.

6. Currency risk can impact the value of your fund

Superannuation is invested in Australian dollars, so if you are transferring substantial amounts into UK sterling, currency risk will clearly be a factor. You should clearly be making every effort to avoid the erosion of some of your accrued value.

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

7. In some circumstances, you can access your super early

There are special circumstances where you can access pensions and superannuation earlier than retirement age in both countries.

These include permanent incapacity, terminal illness, or compassionate grounds. Taxation of both varies so professional advice is needed.

8. Above all else, planning is key

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

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

All investments carry a level of risk – some more than others. Getting it wrong may be costly so we would strongly recommend that you work with a professional financial adviser who can ensure you make the right choices.

Get in touch

The complexities suggest professional help is wise. At bdhSterling, we’re proud to be the only Chartered financial planning firm with offices in both the UK and Australia and are able to help you develop a clear plan.

Get in touch with us for a no obligation chat about your circumstances.