Moving to Australia to retire? A QROPS could be financially advantageous

Category: News & United Kingdom

Given the climate, relaxed lifestyle, and focus on outdoor activity, it would be no surprise if you were planning to relocate from the UK to Australia at some time in the future. Indeed, you may have already made the decision to move and currently be thinking about your next steps.

Clearly the decision to move isn’t a straightforward one. If you intend to make your move permanent and spend your retirement years there, this adds an extra layer of complexity.

If that is your intention, a key part of your planning will be thinking ahead about your income and finances once you’ve stopped working.

Your plan should take all your potential assets into account, especially pension funds you’ve accrued while working here in the UK as they are likely to form the bulk of your retirement fund.

If you’ll still be working after your move, you will also have the opportunity to add more to your pension through a superannuation scheme in Australia.

When it comes to your UK pension, moving it to Australia using a Qualifying Regulated Overseas Pension Scheme (QROPS) could be a valuable option, and one that is potentially very tax advantageous.

Managing your UK pension assets

Before you move, it will be important to have a clear idea of your UK pension assets.

You may well have contributed to several schemes during your working life, including different employer arrangements and your own personal pension.

It’s important to ascertain the schemes you have money in, as not all will allow you to transfer your money to another country.

For example, you will be able to transfer assets you have in:

  • An occupational pension scheme
  • A defined benefit scheme
  • A personal pension
  • Flexi-access drawdown.

However, you will not be able to transfer any of the following:

  • Your UK State Pension
  • Any public sector unfunded pension, such as from the NHS or armed forces pension schemes
  • A scheme pension that you are currently receiving benefits from
  • An annuity.

Moving your UK pension to Australia with a QROPS

QROPS were launched in 2006 and are specifically designed for people who have accrued pensions in the UK who are living overseas and intend to remain permanently outside the UK.

The important point to note is that in order to be able to accept transfers from UK schemes, they have to be approved by HMRC.

As a result, before you consider making a transfer you should check that the scheme you want to transfer to is a QROPS.

Any payment to a non-approved scheme is likely to be deemed as unauthorised and could result in a punitive tax charge of 55%.

Furthermore, such schemes are likely to be unregulated and may leave you without any way to claim compensation in the event of mismanagement.

There are some important benefits of transferring to a QROPS

Enjoy a tax-efficient income

A key reason for transferring your UK pension to a QROPS is the favourable tax position you’ll create for yourself.

Contributions you’ve made to your pension will likely have benefited from tax relief at your marginal rate of Income Tax. And, when you come to start withdrawing from your QROPS in Australia, you will not pay any tax on the income you take.

Avoid having to worry about the exchange rate

You will also benefit from your pension fund being denominated in the same currency of the country you will be living in. This will help you avoid any issues with exchange rate fluctuation when you start taking income from your pension fund. If your pension savings were still in the UK, this would be a potential issue you’d have to navigate.

Keep your tax affairs simple

Additionally, you will also avoid confusion over pension income and taxation. For example, if you were to start withdrawing funds from your UK pension after moving to Australia, you would potentially face a tax charge in both countries.

The only way to avoid this would be to apply for relief through the double taxation agreement, which could prove time-consuming and costly.

It’s important to plan ahead

Once you’ve established that you will be able to transfer your UK pension funds to a QROPS, there are two important considerations to bear in mind as part of your planning:

  • You will have to be living in Australia at the time of the transfer to a QROPS
  • You can’t transfer to a QROPS until you are age 55.

Neither of these issues will prevent you transferring to a QROPS at some stage after moving to Australia, but they need to be taken into account as you plan ahead.

You should also bear in mind that if you transfer your pension savings to Australia and then return to the UK, you will still be able to draw income from your QROPS superannuation fund. However, this will require careful planning to ensure your income is as tax-efficient as possible.

You should get expert advice

Planning for a successful retirement is complicated enough for people who have assets in one country. So, if you’re thinking of moving to Australia and ultimately retiring there, you’ll appreciate the added complexity this could create when you’re planning your future after you stop working.

Transferring to a QROPS means that you will create a highly advantageous tax scenario for yourself. Doing so could boost your income in retirement and help you enjoy a more comfortable lifestyle.

However, it’s not straightforward, and errors could result in you facing unnecessary financial loss.

Our experience of working in both countries means we are ideally placed to help you take advantage of the opportunities while avoiding the threats.

We have a license to provide financial advice in both Australia and the UK and have offices in both countries. We provide a genuine “one-stop shop” for people moving between the two countries.

Get in touch

If you have any queries regarding your financial planning, please get in touch with us.

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. 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 ATO and HMRC legislation, which is subject to change.