If you are an Australian living in the UK, it’s likely that your pension contributions will form a key component of your long-term financial plan, even if you are ultimately planning to return home before finally retiring.
Tax incentives make contributing to your UK pension fund an attractive and highly tax-efficient way to save for your future. Because of this, it’s important for you to understand what these are, and how you can benefit from them.
Furthermore, there are also some key differences in the way UK pensions, and Australian super funds are taxed that you should be aware of.
You get pension tax relief on your personal contributions
A key benefit of contributing to a UK pension is that you get tax relief at your marginal rate of Income Tax on your contributions.
Basic-rate relief is automatically added at source. This means that for every £80 you contribute, the government adds a further £20. So, you get an immediate uplift of 25% on what you have contributed, without you having to do anything!
This applies to contributions you make to any scheme run by your employer, as well as any personal arrangement you may have.
For these arrangements you will need to claim higher rates of tax relief through your annual self-assessment tax return.
The only exceptions to this are certain employer schemes and we would recommend that you check with your scheme administrator with regard to claiming the relief on your personal contributions.
Clearly tax relief is a valuable benefit, and it is worth ensuring you have claimed all the relief you are entitled to. You can claim higher rates of relief for up to four previous tax years if you have not already done so.
There is a limit to tax relief on pension contributions
The maximum amount you can save into a pension each tax year without incurring a tax charge is £60,000 gross (2025/26 tax year.) This limit applies to the total contributions made by you and your employer and is known as your Annual Allowance.
You can contribute up to the lower of your Annual Allowance or 100% of your earnings in each tax year.
However, if you have already started taking income from your pension fund, you have a reduced Money Purchase Annual Allowance of £10,000 gross. If you are a high earner, your Annual Allowance may also be tapered down to a minimum of £10,000 gross.
If you have not contributed up to the level of your Annual Allowance, you can utilise the carry forward facility to maximise your contributions from the three previous years. This is a great opportunity to boost your pension savings with a highly tax-efficient one-off contribution.
Income you draw from your pension fund may be liable for Income Tax
When you come to take income from your accrued UK pension fund, the amount you draw will be taxed if your total income exceeds the Personal Allowance, which is currently £12,570.
The exception this is 25% of your fund which can be taken tax-free.
Because your income will be taxed at your marginal rate, it’s important to plan your withdrawals carefully with an eye on your Personal Allowance, other income sources, and the relevant Income Tax bands.
Where possible, you may want to avoid drawing pension income that could be taxed at a higher rate. You could also consider using your tax-free lump sum tactically as income to ensure you are accessing your pension fund as tax-efficiently as possible.
There is no maximum amount that you can accrue in your pension and take as income, but you should note that the maximum tax-free cash you can take from your fund is the lower of 25% or £268,275 (2025/26 tax year).
You should be aware that if you return to Australia, income you draw from your UK pension fund will also be taxed in Australia. However, the double-taxation agreement between the two countries means that you will be able to reclaim the Income Tax paid in the UK.
Your UK State Pension will be taxed as income
Unlike the Australian Age Pension, which is means tested, your eligibility for the UK State Pension is based on your National Insurance contributions (NICs).
Your NICs history will determine how much State Pension you will receive when you are eligible.
If you are living in the UK when you draw your State Pension it will be taxed as income, and increase each year by either the rate of UK inflation, wages growth, or 2.5%, whichever is the higher figure.
If you are resident in Australia when you draw your State Pension the double-taxation agreement between the UK and Australia will mean that you will pay tax on this income in Australia and claim back any tax deducted in the UK.
If you return to Australia you can arrange for your UK State Pension to be paid to an Australian bank account, but it will not increase from the time you arrive back in Australia or when you start to draw it, whichever is later.
There are key taxation differences between UK and Australian pensions
As you are likely to be aware, your contributions to your Australian super are taxed, primarily at a concessional rate, which is currently 15% (2025/26 tax year)
However, no tax is typically payable when you draw income or lump sums from your fund.
As you have read, the reverse effectively applies in the UK.
Because of this, if you have accrued pension assets in the UK and are planning to retire in Australia it can be highly advantageous to transfer your accrued UK pension funds to Australia once you have returned.
However, this is not a straightforward process and is subject to your eligibility. Because of this, we would strongly recommend that you get expert advice.
You can read more about the transfer process here:
Can I transfer my UK pension to Australia in 2025?
Get in touch
As an experienced financial planning company with offices in both the UK and Australia, we are ideally placed to help you manage your retirement income arrangements, particularly if you intend to move back to Australia to retire.
Please get in touch with us if you would like to talk about your own retirement plans.
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, it does not take into account your personal objectives, financial situation, or needs.
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.