This this could be a required step when transferring your pension money into the Australian superannuation system. Below, we explain the steps involved when undertaking the process.
Self-managed Super Funds (SMSF)
An SMSF is a superannuation fund of which the fund holder is the trustee. This means that you manage the fund yourself – saving for retirement within the SMSF and controlling your own investments.
SMSFs have become very popular in Australia. There are now close to 600,000 in operation, managing some $653.8 billion (AUD) in assets, according to the latest statistics produced by the Australian Taxation Office (ATO) and the Australian Prudential Regulation Authority (APRA).
Managing all aspects of an SMSF is a complex business, involving, amongst other things, dealing with large amounts of documentation and paperwork, preparing accounts, carrying out transfers and transactions, making investment decisions, and submitting the fund’s tax returns to the ATO.
As such, most people prefer to engage professionals to do some or all of the work, and we do indeed recommend seeking expert advice from a company such as bdhSterling, to ensure your SMSF is structured and managed carefully.
Registering Your SMSF with the ATO
Your SMSF must be registered with the Australian Taxation Office. You can have up to four members in an SMSF, comprised of either individual trustees or a company serving as a corporate trustee. When you register your fund, you can elect to have it regulated by the ATO, which will enable it to receive tax concessions and the members’ employers to claim deductions for contributions.
To establish a trust, your fund must have assets – even if it’s just a small amount of cash until members roll-over existing benefits or make a contribution. With the fund established – with all trustees having signed a trustee declaration – you have 60 days to register in the tax and super systems. You do this by applying for an Australian Business Number (ABN) at the Australian Business Register, where you will also need to ask for a tax file number (TFN) for your fund.
Once registered, your fund will be listed on Super Fund Lookup, which will enable other funds and employers to check your fund’s eligibility to receive rollovers or contributions.
A QROPS is an overseas pension scheme that broadly meets the requirements which would apply to an equivalent UK pension scheme. All QROPS will be issued with a reference number from HMRC and the scheme administratorswill be required to make certain commitments with regard to reporting matters to HMRC (reporting requirements are ten years after the member makes a transfer of benefits from the UK). The QROPS has the option to be published on HMRC’s ROPS list.
Transfers from a UK pension scheme to a QROPS are authorised transfers (transfers to a non-QROPS overseas pension scheme will incurthe UK’s member payment charges– usually applied at a rate of 55%). Even so, when transferring to an Australian QROPS, you will need to be a tax resident in Australia at the time of the QROPS transfer – and remain so for the following five to six years – otherwise, the Overseas Transfer Charge (introduced by HMRC in March 2017) of 25% of the transferred fund will apply.
Changes to UK Pension Laws
Since the 6th April 2015, following changes to UK pension laws which highlighted the ‘Pension Age Test’, the only funds that can be considered as QROPS are those that restrict the receipt of UK-sourced pension money to members aged 55 and above, or who have retired on grounds of ill health.
At present, since Australian law permits the release of funds to members of superannuation funds before the age of 55 in certain circumstances – such as severe financial hardship or under compassionate grounds – Australian superannuation schemes do not, therefore, satisfy the UK ‘Pension Age Test’ on this basis. As such, additional restrictions attrustee level are now required in order to set up an Australian QROPS.
Applying for QROPS via HMRC
A correctly drafted trust deed is required to set up a QROPS SMSF. The deed will inform HMRC that your scheme meets the rules to be included on the ROPS list and that you will report information on pension savings that have received UK tax relief and pay tax when due.
Importantly, the deed will prohibit a release of funds when not permitted under UK law – i.e. to members under 55 or unforced to retire on grounds of ill health. It will also prohibit membership of the fund to those who are under the age of 55 years.
You can use form APSS251if you’re a scheme manager to notify HMRC that your scheme is a recognised overseas pension scheme (ROPS).. Once HMRC have approved the application, the scheme will receive a letter with the QROPS reference number and the scheme will appear on the following ROPS list published by HMRC (this is usually updated on the 1st and 15th of each month).
It must be noted, however, that HMRC is careful to explain that inclusion on the ROPS list does not guarantee that your fund is, in fact, a QROPS. It is, therefore, each person’s own responsibility to satisfy themselves that making a transfer to a fund on the list will not attract UK tax.
Setting Up a QROPS SMSF
In summary, setting up your own SMSF requires that you satisfy HMRC that it can be a QROPS – if you wish to transfer your UK pension funds into the SMSF – thereby allowing the scheme to be added to the ROPS notification list.
Seeking the Best Advice
The rules surrounding QROPS are constantly changing, which is why it is so important to take specialist pension advice on these matters at every stage, especially when it comes to making a transfer. There are financial caps that currently apply, including the UK lifetime allowance, the Australian total super fund balance cap, and the Australian annual non-concessional contribution cap. In all circumstances, bdhSterling can advise you on setting up your QROPS SMSF and help you decide whether it is prudent to start transferring your funds.
Please get in touch to today to speak with one of our expert QROPS advisers.