If you have spent time working in Australia, there’s a good chance you have accumulated a significant superannuation pot.
Perhaps you’re an Aussie living in the UK? Or, you may be a Brit returning to the UK after living and working in Australia? In either case, your pension savings may be partly in UK pensions and partly in Australian superannuation – and this makes your retirement planning more complex.
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, the different retirement ages for each country, and two very different taxation systems.
If you’re planning to retire to Australia, the solution would be much simpler: transfer your UK pension to Australia and take it out tax-free.
However, superannuation cannot be transferred to a UK pension, so this makes retiring to the UK more complex. Here are seven reasons why.
1. There is a fundamental difference in how pensions are taxed when you take 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 if you have spent considerable time working in Australia, but you retire to the UK. Speak to us for expert advice.
3. The ages at which you can draw your pension are different in the UK and Australia
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. Investing is key
Even if you are yet to draw an income, it is important 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. Methods of drawing money from your pensions are different in both countries
Both the Australian and UK systems have various but different methods of drawing income as lump sums or income streams, some of which are tax-free.
6. Currency risk is a factor
Superannuation is invested in Australian dollars, so currency risk is a factor in planning.
Transferring currencies has a cost and so can erode some of the value. Using a currency provider is must, rather than relying on bank transfers.
7. There may be circumstances where you can access your pension early
There are special circumstances where pensions and superannuation can be accessed 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.
Get in touch
If you have pensions in the UK and Australia, it’s important to weave together all the variables to create a tax-efficient growth and income plan. Minimizing the tax paid early on maximises what stays invested for longer.
There are many scenarios. Plans need to be specific to your circumstances, but this 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.
Please get in touch if you would benefit from advice, or call (01372) 724 249.
