If you’ve recently emigrated to Australia, or are planning to move soon, it’s likely you’ve wondered about your pension arrangements.
This could particularly be the case if you’ve accrued a substantial retirement fund in the UK or are close to retirement.
Two common expressions you’ll hear about when it comes to thinking about transferring your UK pension to an Australian arrangement are “Qualifying Registered Overseas Pension Scheme” (QROPS) and “Self-Managed Superannuation Fund” (SMSF).
Discover what they are, how they work, and how – subject to eligibility – you could create a very advantageous financial position for yourself by using both.
Transferring your UK pension to Australia
The Australian Tax Office (ATO) limit the number of countries from which they will allow pension funds to be transferred.
The UK is one of the few on their list, but you should be aware that it’s not a straightforward process.
For one thing, not all UK pension arrangements can be transferred.
You’re not allowed to transfer:
- Your UK State Pension
- Any pension that is already in payment
- A government-backed defined benefit (DB) scheme, such as the NHS pension scheme
- Any company pension scheme in the PPF (Pension Protection Fund)
- Any annuities you’ve already purchased with a life insurance company.
It’s also not possible to transfer your pension if you are under the age of 55.
If you are able to transfer, you then need to consider where and how to transfer your fund. HMRC strictly limit where UK pension scheme assets can be transferred to.
You can transfer your UK pension to a qualifying scheme without a tax charge
As the name suggests, a QROPS is an overseas pension scheme that meets the requirements set out by HMRC, and, as a result, is able to accept a transfer from a UK pension arrangement.
Transfers from a UK pension scheme to a QROPS are authorised transfers. If you were to transfer to a non-qualifying overseas pension scheme you are likely to incur an HMRC tax charge of 55%.
Furthermore, in order to comply with the HMRC guidelines regarding the setting up of a QROPS, the scheme administrators will be required to make certain commitments on reporting matters to the relevant tax authorities.
Another restriction to be aware of is that, once the transfer to the QROPS has taken place, you will need to be a tax resident in Australia at the time of the QROPS transfer – and remain so for the following five complete UK tax years. Failure to meet this requirement will result in HMRC imposing an overseas transfer charge of up to 25% of the original transferred fund.
HMRC will need to register your QROPS
A correctly drafted trust deed is needed to set up a QROPS. This will inform HMRC that your scheme meets the rules to be included on their list of recognised schemes.
Even when HMRC have approved your application, it’s important to note that inclusion on the list does not guarantee that your fund is, in fact, a QROPS. All they have done is register it based on the information provided.
Because of this, it’s your responsibility to satisfy yourself that making a transfer to a fund on the list will not attract UK tax.
Given these restrictions and requirements, and the fact that mistakes could prove costly, we would strongly recommend that you get expert advice if you’re looking to transfer your UK pension into a QROPS.
The self-managed route for super funds
The bulk of super funds are large collective schemes that are managed by specialist trustees who handle the administration and investments.
An alternative to this is to set up your own Self-Managed Super Fund (SMSF).
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. According to a Forbes report, there are now 600,000 SMSF arrangements managing $892 billion in investments.
Many people actually have two separate super arrangements – one for their employer-related scheme contributions, and an SMSF for other investments.
Keeping control of your pension with a QROPS SMSF
Although it is possible to transfer your UK pension into a collective QROPS, managing your fund yourself could be an attractive option.
You’ll have full control over investment decisions and access to a wider range of investment options than if you were in a collective super. You can also benefit from concessional tax rates as you’re building your fund for retirement, and you’ll be able to react quickly to your changing circumstances, or if you become aware of any appropriate investment opportunities.
You can have up to six members in an SMSF. It’s common for family members to share a self-managed scheme so if both you and your spouse are both transferring accrued UK pension funds, you can access the same SMSF.
SMSF administration can be onerous
It’s fair to say that managing your SMSF yourself could prove time-consuming.
It will involve detailed documentation and record-keeping. Additionally, in order to be eligible for valuable tax incentives, your SMSF must be registered with the ATO, and you’ll need to provide annual tax returns.
Because of this, and the importance of ensuring everything is kept up –to date and compliant, we would strongly recommend using an SMSF specialist to help you manage and run your fund.
Get in touch
If you have any queries regarding QROPS, SMSF or any aspect of your financial planning, please get in touch with us.
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.