A member of a UK final salary scheme, who is looking at a pension transfer to Australia, would need to understand the benefits that their existing scheme provides before transferring to Australia. In many cases, if an individual UK pension member is confident of remaining in Australia throughout their retirement, a UK pension transfer to Australia would make sense because of the tax free and flexible benefits that an Australia superannuation scheme can provide – even if the existing benefits are in a UK final salary (defined benefit) scheme.
However, as with many other issues with migration to Australia, just because a friend or work colleague in Australia has transferred their final salary scheme to Australia does not mean that you should follow suit. Not all benefits from final salary schemes are calculated the same way for each employer – indeed, even within the scheme the factors determining your retirement benefits can change depending on when membership of the scheme commenced.
The first main factor determining your benefits is the question of what defines a final salary? Final salary or final remuneration can be defined in several different ways. This can be an individual’s last year’s earnings in the year of their retirement or date of leaving employment or the best salary in the last 5 years of employment but more commonly it is an average of the final 3 years salary when leaving employment.
The next factor is years of service. Again, each scheme can vary in this definition. This can be based on years of service in the scheme. It could also be based on the years of service with the employer (if the member joined the pension scheme at a later date of joining employment). A member would also need to be aware how their scheme defines a ‘year’ of service – are part years counted? Are whole years only counted?
The final main factor is the accrual rate. This is the ‘fraction’ applied to each year of service, for example 1/60ths or 1/80ths, to determine the final pension. Each final salary scheme can apply a different fraction.
Putting this altogether, if an individual retires with a final salary of £90,000 and has worked for 40 years, a scheme with an accrual rate of 1/60th would provide a pension of £60,000 pa (£90,000 x 40/60ths).
The above example is a basic calculation to illustrate – and would not be the calculation used for all final salary schemes – and assessing whether a pension transfer to Australia should occur in these circumstances would largely depend on what the scheme offers as a transfer value.
Global QROPS Ltd advisers have both the experience, and importantly, the permissions from the UK financial services authority (FSA) to provide advice on pension transfers from UK final salary schemes.
