How to unlock the full potential of your UK pension in Australia
Transcript
Brenton Ritchie:
Ok. Thanks everyone for joining us today from the team here representing bdhSterling as we present to you a great session outlining unlocking the potential of your UK pension in Australia. During the session today, we’ll share information and considerations around the type of pensions, where it may be possible to transfer and the logistics around doing so. The tips and traps around the process of undertaking a transfer and why it’s necessary to gain advice to look at such transfers due to complexity and also how you want to make the most benefit of the funds in conjunction with the overall financial planning needs. We’ll take you through quite a few slides today as we go through that. The first slide which will take you through is having a look at general information aspect of what we’re looking at here and this will take us through the typical warning that we see on these presentations around what happens within Australian and UK legislation. It’s based at the 27th of November and is general information only. What we take you through today is not tailored advice to your specific situation. So before acting on any of the information contained in today’s session, we’d encourage you to look to seek tailored financial advice specific to your needs.
To introduce myself, my name is Brenton Ritchie. I’m the Financial Planning Manager for the Australian division of our business. I will help facilitate today’s session and assist with the Q&A at the end. The most important person that we have here today is Daniel Ash Wentworth, who’s a Financial Planner from our Western Australian office. Dan has been advising with bdhSterling for a good five years now. With industry experience Prior to joining us with advice strategies across UK and Australian clients. Dan’s integral part of the bdhSterling team with his knowledge across both the UK and Australian jurisdictions and Dan has the tough job today of taking us through the main content you need to know about unlocking the potential of your UK pensions in Australia.
We’ve broken the session today into five key topics.
The first being the types of pensions and why it might be worthwhile to transfer. The next QROPS -acronyms in financial service. We love acronyms! And QROPS stands for Qualifying Recognised Overseas Pension Scheme. So, we talked about what is a QROPS scheme, the transfer process, what it takes to transfer across and why it’s important. And why advice is important in that process?
As well, we’ll talk to you about bdhSterling, where and how we can assist in the process, and then Q&A. We’ve certainly allocated time at the end to answer questions you may have, and so please feel free as we go along in the Q&A section there drop some questions in there. We’ll try and answer as many of those as possible. And if by chance we don’t get through all the questions, we’ll come back with any specific answers to questions that you have posted. So, let’s move on to the first section there of what are the types of pensions and why to transfer and I’ll pass it over to Dan.
Daniel Ash Wentworth:
Perfect. Thanks Brenton. As Brenton has mentioned, well, first of all start with the types of UK pensions that people may hold and be looking at what their options are relation to those. So, first of all, we have company pensions which you may have been contributing towards whilst you’re in employment with the previous UK employer or your employer was even contributing to on your behalf, and we’ll go through the different types of those pensions on the next slide. In particular, you’ve also got private UK pensions, which you may have set up yourselves. These alongside the company pensions are both types of pensions that can in fact be transferred. Finally, we also have funded public sector defined benefit schemes. So, these could be if you worked for a local government or Council whilst in the UK. These are all types of UK pensions that can in fact be transferred out of the current scheme and potentially to Australia.
Unfortunately, there are some types of UK pension schemes which are unable to be transferred. The first of that being the UK State Pension. So, if you’d worked in the UK for a number of years and made National Insurance contributions, unfortunately this pension is unable to be capitalised and transferred across as a lump sum. All be it though you are able to direct the weekly payments you can receive in the UK State Pension into an Australian bank account.
Another type of pension scheme that is unable to be transferred are Government Unfunded pensions, which include NHS, Army, Police or Firefighters, pension schemes. And these schemes may say on the documentation that they can be transferred. However, they can only be transferred within that family of pension schemes in the UK, so i.e. if you were previously working as a doctor and then you moved into the Armed Forces, you could potentially move your pension from the NHS into the Armed Forces, but not outside of that group.
Some company pensions are unable to be transferred, so these are typically ones that are already in payment. So, if you have a UK company pension which is defined benefit scheme, and again I’ll talk to those in a moment, these are unable to be transferred if you’re already in receipt of these. Also company pensions that have fallen into what is called the Pension Protection Fund. So if your UK pension scheme has fallen into administration, unfortunately this would have been absorbed by the Pension Protection Fund and once they’ve done so, unable to be transferred out of that. Finally, we have annuities that have already been purchased with a life insurance company in the UK. Once this has been undertaken, you are unable to transfer the funds – you just have to continue with the payments that you were in receipt of.
We then go on to company pensions and the different types of company pensions. So, we’ve got, first of all, what we call defined contribution pensions, so defined contribution pensions work very similarly to Australian superannuation in the fact that typically it would be you as the member contributing to this type of pension scheme, as well as your employer contributing to this pension scheme. And this will be typically based upon your salary whilst you’re in that employment. Once these contributions have started going into this type of pension scheme, the funds are typically invested and the contributions that you are making and the investment returns that are achieved typically will determine the value of your pension scheme now, but also when you move into retirement and then you can potentially look to access as much or as little as you want from that pension scheme when you reach your retirement age or eligibility to access that fund. Typically, in the UK at the moment that is from age 55, you can access these types of pension scheme.
It is important, though, that these pension schemes, when accessed, are taxable, and we’ll come on to that in a bit.
And the other type of UK company pension scheme is a final salary, or what is now called a defined benefit, pension scheme. These types of pensions are based on the salary at the time of which you finished employment with that previous employer, and also is dependent on the number of years of service whilst you were in that employment.
So typically, it’s a formula-based pension which has got a common denominator, i.e. a 60th or 80th type of scheme. And if you work to that in that employment for 10 years, typically it would be 1060 or for 1080s, multiplied by your salary at the point of leaving. And that is how that annual figure is calculated at that stage in time and then typically these types of pension schemes, if you’re no longer in that employment and moved on, they will move into what’s called deferment. So, there’s no more contributions or no more accumulation. As such. However, those benefits will revalue between now and your normal retirement age. And at, at which point you will receive a guaranteed income from that pension scheme for the remainder of your life. And that income again may index throughout your retirement.
These pension schemes typically don’t have a total transfer value on a day-to-day basis, and it is typically quoted as a per annum figure that you will receive as an income. But you can request what is called a cash equivalent transfer valuation, should you wish to explore the possibility of a transfer out of this type of company pension scheme.
So, onto the next slide of, ‘Why would you, if you hold a UK pension, potentially consider transferring?’
Well, first of all and one of the most common reasons for people, especially those living here in Australia or potentially looking to move to Australia is that you can gain control or currency control, i.e. remove that currency risk associated with your funds. Typically, company pensions and private pensions that you hold in the UK are going to be held in GBP and would be paid to you in GBP, so you are you have no control over the exchange rate applied when you’re receiving those funds. Whereas if you export a transfer, then of course you could potentially hold them in the currency in which you are domiciled and remove that long term currency risk. And you can see on this slide as showing the exchange rate between the British pound and the Australian dollar over the past five years. It certainly illustrates how volatile that’s been over the just a five-year period. If we’d expanded that the range of the highs and lows would be even greater than those displayed at the bottom of this slide today.
Some of the other reasons why yourselves may consider transferring. First of all, with UK defined benefit pension plans, in particular, some of these schemes only allow for a certain percentage of the guaranteed income that you’re eligible to receive to be passed on to the to your spouse in the event of your death. For some people, it could be a driver to look at moving away from these policies because they want to ensure that their spouse, or even the rest of their estate, can actually receive a full 100% of that pension entitlement that they’re going to receive in retirement or in post their death, rather than just a fraction of that.
Another potential driver for people to look at transferring out of their current UK pension scheme is the funding position. We mentioned earlier if your pension, or if your employer / previous employer for that matter, may fall into administration, then if you held a defined benefit pension scheme in the UK, this will have to move into the Pension Protection fund. And if that pension scheme does move into the Pension Protection fund, you may only receive up to 90% of the annual income that you were entitled to receive. But not only that, it may be that your fund/ your annual income may not increase at the same level throughout your retirement as it would have had the employer not falling into administration and your scheme not being absorbed by the Pension Protection Fund. So that is potentially a concern for some people.
Some other reasons include gaining investment control. So, for some people it may be that they don’t like having no control over how the funds are invested whilst those funds are held in the UK – and by transferring out of the current provider, and bringing them to Australia, allows them to have more input and control over how these funds are invested between now and their retirement, and even post their retiring.
Another huge factor is the potential tax benefits that can be obtained by transferring a UK pension across to Australia. So, with a UK pension, as I mentioned or referred to earlier on, UK pensions are added to your taxable income in receipt, whether you’re living in the UK or living here in Australia. If you are going to be living and retiring here in Australia, having that income added to a worldwide taxable income here may not be as tax efficient as a transfer, because if you transfer a UK pension across to Australia and into a superannuation scheme here, you will actually only pay tax on the associated earnings of that fund since your date of arrival. From between your data arrival, sorry, and the point of transfer. So, for some people that may mean they’re only paying tax on 50% of the valuation and you only pay tax at the concessional rate of tax within superannuation, which is 15%, assuming you pay the tax from within that receiving Super Fund.
Therefore, it could be tax advantageous to transfer those funds, because one you’re only paying tax on a smaller percentage than if you were to take an income from that fund. But also, you are paying tax potentially a lesser tax rate than what you would do if you were receiving that income paid personally to you and you paying tax at your marginal rate of tax.
Of course, for some people that doesn’t always mean it’s going to be more tax effective, and that is why we would encourage you to gain advice on this before doing so.
Finally, and by no means least important, there is the consideration of consolidating your retirement funds. So, you’ve got the option to bring your funds across Australia and consolidate those with your other Australian superannuation funds and your retirement funds as a whole. That may create an ease of management for you as an individual, but it also may create the opportunity for you to reduce the ongoing costs associated with your retirement funds, which may allow you to maximise how much you are going to receive when you are in retirement.
Now as there is with everything, there are potential drawbacks to a potential transfer, and it may not be best for everybody. And there are fees involved with a UK pension transfer across to Australia and it may not be cost effective for you. So, it would be something that was worthwhile reviewing before you undertake this.
It may also be a point to consider the fact that the UK pension scheme may actually be providing very good or generous returns that are difficult for you to achieve here in Australia, in particular for UK Defined Benefit Pension schemes. These schemes sometimes provide a fixed rate of revaluation, which could be 7 1/2 and 5% each year. It may be very difficult for you to then bring those funds to Australia and invest them and to achieve on a regular basis a return such as 7 1/2% and therefore it may be better for you to keep those funds with the current pension provider in the UK.
Some pension schemes apply an early exit penalty, or a market value reduction should you look to transfer out before your retirement age. So again, this is another factor that needs to be considered before a transfer is undertaken.
And finally, as I mentioned, for Defined Benefit Pension Schemes, once you transfer out of that guaranteed income environment, you bring them into an Australian superannuation. You are then responsible for the investment risk taken, whereas with the UK Defined Benefit Scheme, the investment risk is bought by your pension provider or previous employer. For some people who are averse to taking on that investment risk, it may not be suitable to then transfer out of this type of environment where you’ve got a guaranteed income where you as the Member are not having to take any investment risk.
So now that we’ve established why you may look to transfer and why the transfer may not be in your best interest, let’s look at the transfer options so.
If you are under the age of 55 currently, you can explore one of two options. You can either retain your pension with the current provider as it is, as we mentioned for the any of those factors previously, or you could look to explore transferring your UK pension into a UK self-invested personal pension or a private pension plan.
Now a UK self-invested personal pension (SIPP) is a pension scheme which allows you as the individual to have input, or even full control, over the investment decisions taken with those funds and moving forward. Of course, assuming those range of investments are approved by HMRC, this type of pension scheme is very similar to a self-managed superannuation fund that some of you may be familiar with here in Australia. It is also important to note that with a UK SIPP, as they’re referred to, you can also employ a Financial Adviser if you aren’t comfortable with taking on the investment decisions yourself. So that you are seeking advice and the adviser helping you in making those investment decisions moving forward.
The other benefits of potentially moving to this type of UK pension policy whilst you’re under the age of 55 include being able to remove that currency risk that we mentioned earlier on. And so you’ve got the ability with some of the providers in the UK, and some of those that we use to hold your funds in either British pounds or convert them to Australian dollars and remove that long term currency risk. Equally you would have the ability to invest your funds in British pounds or look to invest them into Australian dollars.
Another potential benefit of moving your UK pension funds into this UK SIPP is that 100% of your pension passes onto your beneficiaries, unlike those UK Defined Benefit Pension Schemes where only a percentage passes on to your spouse. With these types of policies if you pass away under the age of 75, there is no tax applied in the UK. However, it is important to note that there could be tax in the country in which the beneficiary is resident of.
Finally, you can have as much or as little input into the investment these pensions, as we mentioned as well. So having that control can be a big driver for clients. But again, of course it’s not suitable for everyone and that’s why we would encourage you to review this and give it consideration before making that decision.
For those of you who are lucky enough to be over the age of 55, there is a slightly different option which Brenton referred to earlier, which is the possibility of transferring your UK pensions to a Qualifying Recognised Overseas Pension Scheme (QROPS) here in Australia. Or alternatively you can retain your pensions in the UK, similar to the options we’ve just discussed with age 55.
This anagram of QROPS may be something you are not aware of. So just to give you a little bit of a background of what is a QROPS. So, as we mentioned it’s a Qualifying Recognised Overseas Pension Scheme and this terminology was introduced in April 2006. This is an overseas pension scheme that has been approved by HMRC, given the fact that it meets their criteria for a UK pension to be transferred into that policy.
Now, this QROPS can be an option for those who have left the UK and with the intention of permanently residing outside of the UK and in this instance residing here in Australia.
Now as is with anything, there have been developments since this was introduced in 2006 and we wanted to highlight some of the key legislative changes that we wanted you to be aware of in today’s webinar.
So back in 2015, one of the major changes that took place in this area is that you are unable to now transfer your NHS, Armed Forces or Police pension to a QROPS or another funded UK pension scheme. As I mentioned earlier on, you can only transfer these types of pension schemes within that family of pensions in the UK.
Another major change that was introduced in 2015 was the pension age test. This was introduced by HMRC to ensure that members were not accessing their funds earlier than what HMRC deemed acceptable, which at this point in time is age 55.
What this has then meant is that there is a restriction on being able to transfer a UK pension across to Australia until you have in fact reached that age, because here in Australia, under superannuation legislation, you can actually access your superannuation earlier than that point in time if you suffer financial hardship. HMRC’s do not agree with this legislation and therefore have restricted anybody transferring the UK pension across to Australia until they have reached that age in which HMRC deem is acceptable to access their funds.
It is also important to note that there will be a future legislative change coming in as at April 2028, which is going to increase this age from 55 to 57.
Importantly to note as well, following this pension age test being introduced, Australia lost 1,652 schemes which were on the QROPS approved list from HMRC and now we only have two options available to explore.
You will also see that there was another significant change that took place in 2015, which has now meant that anybody that holds a UK defined benefit pension scheme and has a cash equivalent transfer value over £30,000 is required to obtain independent financial advice from a UK pension transfer specialist adviser such as myself. That is an important thing to note for anybody out there who’s looking to transfer this type of pension scheme.
Now there were further changes that took place in 2017. First of all, in March, there was a 25% tax charge introduced to anybody who was transferring their UK pension to QROPS, which is not in the same country as which they reside. So, for instance, if you were looking to transfer your UK pension across to New Zealand today, but we’re living in Australia. You would be subject to this overseas tax charge, as it’s called, of 25% of your fund value for moving it to a policy or to a QROPS in a different country to which you live.
Later on in 2017, we had then the Australian side of things where they changed their rules and they’ve reduced the contribution caps here. Which has had an impact in terms of how much of your UK pension can be transferred into an Australian superannuation QROPS. And this reduced from $180,000 each year to $100,000 at that point in time. It has since increased up to $110,000 each year. And actually, there has been some positive news from a legislative point of view for anybody looking to undertake a UK pension transfer on the Australian side, as we’re now able to make these types of non-concessional contributions up until the point at which you reach age 75 without having to meet what is called the Work Test over here.
Another positive change was that the transfer balance cap from your Australian superannuation has increased. It was set at $1.6 million previously, but that has now increased up to $1.9 million. So, it does allow for people to bring potentially more of their UK pension funds across to Australia without breaching these caps.
Now, why would you want to potentially take on a transfer across to Australia? Well, these are some of the benefits. And first of all, you’ve got the pension funds in the same country as yourself, which potentially could give you peace of mind and create ease of management without having to deal with the time difference in dealing with the UK pension policy.
Of course, by having those funds in the same country as yourselves, you can have them denominated in the same currency in which you’ll be spending those funds, i.e. in Australian dollars, and removing that long term currency risk.
If your funds are transferred to a QROPS superannuation here in Australia, then 100% of your funds can be passed on to a tax dependent tax free. If they’re being passed on to a non-tax dependent, there can be potential tax benefit or tax implications of which these can be discussed and reviewed at the time.
Additionally, it can allow you to consolidate not just your UK pension funds, but also your Australian superannuation funds with those same UK pension funds. Again, allowing to create that potential ease of management for yourselves, but also a potential reduction in the ongoing costs associated with your funds. And of course, hopefully allowing you to compound the returns moving forward to maximise how much you will have when it comes to that point of retirement and taking an income from that QROPS superannuation here.
Now, if you were to undertake a transfer of your UK pension funds to QROPS, there are some important rules from an ongoing perspective that you need to be mindful of also. So, if your UK pension funds are transferred here to an Australian QROPS, it is important to note that you will need to report, or the fund will need to report, certain events to HMRC for 10 years. And now these events include making a withdrawal from that superannuation once you meet that condition of release and retire. Or it might be that you’ve changed address and this needs to be reported back to HMRC. You also need to ensure that the benefits are received broadly in line with the UK’s pension scheme provisions, which would, you know, be very similar to the Australian Superannuation legislation here. So, you could take a regular income from those funds from that QROPS superannuation should you wish to do so.
One of the important points to note is that if you were to undertake a UK pension transfer to a QROPS superannuation, you need to retain those funds with that QROPS until you have met the longer of the two-member payment provision periods. So, these rules are you need to have been a non-resident of the UK for 10 full UK tax year. And the other is you need to have kept your funds in that QROPS superannuation for five full UK tax years from the date of transfer. And you need to meet the longer of whichever criteria applies to yourselves. So, to give an example, if you move to Australia in 2010, you’ve already met the 10 years of non-residence, but you will be subject to the five full UK tax years from the date of transfer before you could undertake a rollover of your QROPS money to a non QROPS superannuation here.
It is important to note though, that if you meet a condition of release here in Australia, whilst those funds are held with a QROPS, there is nothing to stop you accessing those funds before either of the member payment mission periods are met. For example, if you brought your funds across to Australia and you are currently 60 years old and you are no longer working, you will technically meet a full condition of release and be able to access your QROPS superannuation funds.
As I said though, you do need to keep them in that QROPS superannuation, or you can take a rollover to another superannuation. So, if you’re looking to consolidate them with an Aus super fund that you may hold here, then you wouldn’t be able to do so immediately. You could on the other hand look to explore potentially consolidating your Aus super into your QROPS – that can be done that way around. But of course, again, we would encourage you to seek advice on that before you undertake any consolidation that way round to make sure it is in your best interest for yourself.
So, in terms of the transfer process and how that looks, we’ve just outlined that step by step. So, you will see here this is how we here at bdhSterling would implement this transfer process. So, the first stage is to hold an initial meeting with yourself. This comes at no cost and no obligation for yourselves to engage bdhSterling post this meeting. And this is an opportunity for myself as the adviser or one of my colleagues to understand your financial position and what you’re hoping to achieve and then outline to you our services and how we could potentially help you with that UK pension transfer and of course go through any fees that would apply to that service. Once you’ve had that first meeting, of course if you wish to then proceed with the service we can then undertake research into a UK pension scheme, but also research your financial position to ensure you know what is in your best interest and review the relevant options available to you.
Once we’ve done that research and analysis, we’ll then compile what we call a UK pension transfer analysis report with a full review of your position. And in that report, we will detail what our findings have been of the research of your scheme, what the analysis is as to whether we think it’s in your best interest or not to transfer that UK pension and illustrating, you know, the background workings for yourself. And then we will deliver our recommendations of advice as to whether we believe it is, in fact, in your best interest to proceed with the UK pension transfer across to Australia or not, and give you the reasons as to why.
Once you’ve reviewed the report and our recommendations, and you’ve then got the ability to then engage us to proceed with implementing the advice and assisting you in managing that transfer process initially. And of course, we can look to a longer-term relationship from there should you wish to do so, looking at your more holistic financial planning needs here in Australia and managing of those funds moving forward, should that be something you wish to engage with.
The reasons why we would encourage you to engage or seek advice before you make any decision about a potential transfer, as you can see from what we’ve highlighted already in today’s presentation, there are constant tacks and pension and even super changes in the UK and Australia, which make it very difficult to keep abreast with all these changes and therefore we would advise you to seek specialist advice in this area to ensure that you are complying with these and not falling foul of any of the rules and regulations that we need to be mindful of. You can probably see by bullet no. 2 if you do fall foul of some of these rules and regulations, the penalties can be quite punitive. If you do break breach the QROPS rules, you can be subject to a penalty of up to 55% of the fund value for a non-complying transfer. So, it is imperative that this transfer is done correctly from a UK pension to a QROPS to ensure that you are not going to be subject to such a hefty charge!
And then finally, it’s also giving you that piece of mind of if the UK pension transfer is possible, but also is it in fact in your best interest. Doing so without advice may mean that you’ve gone ahead of the transfer, and it may not have been the best decision for yourselves either in the short term or the longer term.
Brenton Ritchie:
Ok. I’ll jump back in there. Thanks, Dan, for taking us through the contents there. And I think the next thing which we want to try and explain is why bdhSterling? bdhSterling is a long running financial planning business across both the UK and Australia. We have offices in both jurisdictions and multiple offices in Australia with Perth, Melbourne, New South Wales (NSW) and its satellite office in Queensland as well.
We have dual-licenced advisers, so a lot of our advisers are qualified both in Australia and in the UK and help give a much broader perspective around the intricacies of pension transfer advice and also how that plays into the client’s overall goals and needs and objectives and the future of their retirement or lifetime within Australia.
We are Defined Benefit Scheme specialists – absolutely have a lot of knowledge, experience and how to benefit from Defined Benefit Schemes. How to make use of those if it is in the stage of a pension transfer. We can do this all under one roof for Australia and the UK through the global offices. We certainly look to try and streamline that process. It is not the simplest process in the world, but we certainly look to streamline it and make it as simple as possible and take a lot of the heavy lifting work off yourselves and do that through the offices and the reach that we have.
We also are able to provide advice in other financial services areas such as Australian super, obviously where we talk about dual-licenced advisers and operating in both jurisdictions absolutely can do that.
Tax advice. We do have a sister company, bdhTax. And obviously retirement planning that broader advice relationships that we can have. For those wider goals, needs, objectives and what you’re planning for in in retirement stage. And as we said, certainly have a number of years there of experience in UK pension transfers and that depth and breadth across both those jurisdictions.
So, if you want to chat to a financial planner, absolutely we are there to talk to you and see how we can assist. enquiries@bdhsterling.com is certainly the 1st avenue and then we take you through, as Dan alluded to there, a bit of the process around how we’ll start to begin engaging and talk you through what opportunities are there for you. From pension transfers and how that process looks for yourself and then how that plays out with what your expectations are around longer term advice relationships with the planners. Be that in the UK or be that, or yes, you are definitely looking to move to Australia and that’s the long term position of where you would see yourself staying.
A little bit of information which we’re keen to get first off: if you are able to give us age, broad retirement plan like what are you looking to achieve? Why would that be important to you? What sort of time frame you’re looking at? That certainly helps the team there to begin a bit of that conversation around where we can take you on that journey.
So, the Q&A, so again thank you Dan for taking us through the presentation. There’s certainly a lot of hints, tips and worthwhile content there. The Q&A section is certainly ready to take some questions there. So, if you want to start dropping questions into that Q&A tab on your screen, we’ll certainly start trying to answer as many of them as we possibly can. As we mentioned earlier, if we don’t get through all of those, if there’s some still sitting there at the end, we’ll certainly look to come back separately to answer those questions.
First, questions come through absolutely recording will be made available at the end of this usually about 48 hours afterwards we will get that recording out to all people who have been attending the webinar.
Dan, I might throw one in first while we wait for a couple to come through.
A residency question – ‘Do you have to be a permanent resident to use QROPS, or does it apply to temporary residents on a bridging visa to be able to undertake a pension transfer?’
Daniel Ash-Wentworth:
So, by the letter of the law, yes, you can potentially transfer a UK pension into a QROPS scheme if you are a temporary resident. However, we would flag that potentially doing that because if you are a temporary resident, there can be issues with accessing or meeting condition of release here in Australia. So, we would encourage anybody who’s considering doing that to seek advice on that matter because it can be quite complicated and something to be mindful of.
Brenton Ritchie:
Absolutely. Thanks, Dan. OK question, ‘Can you hold both the UK SIPP and an Australian Super Fund at the same time and then hold both of them on going into the future?’
Daniel Ash-Wentworth:
Yes, you can certainly hold both the UK SIPP and Australian Super Fund at the same time. As I mentioned earlier, for some clients it may be more tax efficient to retain your funds in the UK SIPP rather than bringing them to super. So, for some people that may be the best-case scenario for them.
Brenton Ritchie:
Perfect. Thanks, Dan. I’ve just jumped into the chat as well and I’ll just pull a few of the questions out of there. Dan, question that’s come through. I’ll give this one to you. ‘You’ve talked a lot about Defined Benefit Schemes. Are there any fundamental differences for the Defined Contribution Scheme?’
Daniel Ash-Wentworth:
Yes, there is with Defined Contribution Schemes. These are, as I mentioned, very similar to an Australian superannuation plan in the fact that these are built up based on yours or your employer contributions and then these funds are invested, typically. Some defined contribution plans will vary depending on the type of policy you have, and you can have what we call with profits plans, which may mean that your funds are invested, but actually what you’re receiving each year is a smoothed return that’s being apportioned to your individual account, for instance. Alternatively, you could have a personal pension plan which works exactly as I’ve described earlier on. But yeah, these types of pension plans are very different to a Defined Benefit Pension Scheme. And again, we would still encourage you to sort of seek advice before potentially looking at transfer for all the reasons we’ve gone through in today’s webinar.
Brenton Ritchie:
Perfect. Then to clarify, the Under 55-year-old transfer option, I’d need to transfer my UK company pension out and into a SIPP before I can move it to Australia? That might be a two-prong question there Dan – of transferring in the UK first into a SIPP and then age for being able to get it across to Australia.
Daniel Ash-Wentworth:
Yeah. So, if you are under the age of 55 currently, then unfortunately you can’t explore the possibility of transferring the funds to Australia in the immediate. And we’d have to look at possibly transferring it to an alternative UK pension schemes prior to an onward transfer. And what we would say though is when we deliver that advice, if you engaged us for that, we would always look at the validity longer term as well of bringing those funds across to Australia. So, we’re not just looking at the immediate, we are then looking at the longer-term plan of yourself. So, our UK report may read, yes, proceed with a transfer to this scheme for now and then once you turn 55, then implement a transfer onward to Australia, potentially in line with XYZ.
Brenton Ritchie:
Perfect. There’s another one in there of similar theme to that as well. So, a pension was already moved into UK QROPS SIPP and seemingly stuck in the UK due to the rule changes at this point in time. Seems unable to bring that over into age 55. When that’s brought over, can it be moved into an SMSF?
I’m happy to grab that one. Yes, there is a change, as Dan sort of alluded to. So, the 55 to 57 age bracket eligibility is changing. So that will be impactful for some clients who, depending on their current age, will be needing to be 57 before it can move across. And when it does come across, yes, one of the options that is available is to move it into a Self-Managed Super Fund. Obviously when we talk about reporting obligations that Dan mentioned, we’ve got 10-year, five-year, it is possible that some people may want to segregate that into a QROPS SMSF and maintain a separate fund from their retail fund. But it is possible to move it into a Self-Managed Super Fund or a separate retail option when it comes across to Australia.
Cool, Dan, I’ll give this one to you. ‘Assuming you transfer into a QROPS in Australia and then retire here at say age 65, is your super income then taxed like normal income or is it effectively tax-free?’
Daniel Ash-Wentworth:
The superannuation is different to UK pension. It works in the opposite manner. So, in the superannuation you accumulate in a taxable environment, but then when you start taking an income, it is paid to you tax-free, which is what creates the potential tax benefit of transferring that UK pension into a super. Because of course longer term you can take that income without any tax implications and you’ve of course you’ve got the flexibility to take as much as you wish.
Brenton Ritchie:
Excellent. Hey, Dan. Offhand the age dates or the dates of changing from 55 to 57 for transferability?
Daniel Ash-Wentworth:
April 2028. The start of that UK tax year.
Brenton Ritchie:
All right. Thank you. Just reflecting back on one of the sections in the presentation, Dan, in the QROPS responsibilities section. Are you able just to just recover a little bit quickly around the five-year period of where reportability is still required?
Daniel Ash-Wentworth:
Yeah. So again, what it means is that you need to keep your funds in a QROPS superannuation scheme once the transfer has been done for the either the longer of 10 years of non-residents from the UK or five full UK tax years from the date of transfer. So, for instance, if your transfer took place today, and you’ve lived here in Australia since 2010, you’ve met the 10 years of non-residence rule, but the five full UK tax years component will be what you’re subject to before you can do a rollover of your funds to another superannuation policy. So, in that example it would be April 2029 before you could take a rollover of those funds to a non QROPS vehicle.
Brenton Ritchie:
Thanks, Dan. Questions come through is Q Super a QROPS scheme? On the HMRC website, it states Q4 super is a QROPS scheme. I’m not sure if this is a typo. Q super from an Australian point of view isn’t a QROPS scheme. There are very limited options within Australia of what would be recognised by HMRC as a pure OROPS scheme. Q Super is not one of them. Dan, you may be able to know more detail about Q4 Super. I would say it’s potentially a Self-managed Super Fund that’s listed as a QROPS scheme, or it may be in another jurisdiction outside of Australia, but not an Australian one that I’m aware of. Dan any knowledge to you?
Daniel Ash-Wentworth:
If it’s on the Australia List, I would assume it’s someone using play on words with their Self-Managed Super Fund.
Brenton Ritchie:
So, it’s. Uh, yeah, not one which we would actively be able to look in. It would be someone’s personal Self-Managed Super Fund is most likely for that one.
Next one down, I might read this one out for you. ‘I’m 67 years of age. UK company pension scheme. Have resided in Australia for 13 years and Australian citizen now. If I were to transfer it to an Australian OROPS scheme, at what rate can I take money from the QROPS scheme?’
Daniel Ash-Wentworth:
So, if you’re currently 67, once those funds arrive into the QROPS superannuation and you would technically meet a full condition of release here in Australia because you are already above the age of 65. So, you could take up to the full amount from your superannuation the day after it’s received, should you wish to do so. But if you started to elect to take an income, you will have to take a minimum amount from that superannuation which at age 67 would be 5 percent per annum.
Brenton Ritchie:
Excellent. Thank you. Couple have come through around UK state pension payments. Dan, we’ll drop these ones to yourself. ‘Are you able to confirm that the UK state pension payment freezes when it’s first drawn from Australia regardless of any arrangements made across wider pension funds?’
Daniel Ash-Wentworth:
I can confirm the UK state pension is frozen upon first receipt of income.
Brenton Ritchie:
And you say that probably with the way it’s been received is disappointing to the asker of the question. Similarly with UK state pension, what are the tax implications of receiving the UK state pension into a UK account and do I have to bring it into Australia and is there a difference other than currency rate?
Daniel Ash-Wentworth:
So, you should be declaring that UK State Pension if you are an Australian tax resident under the self-declaration tax model we have here, it should be declared regardless of which bank account you receive it into UK or Australia, because it’s still an income you’re in receipt of. You don’t have to bring it to Australia, though, mind you could continue to hold it in a UK bank account and potentially use it to fund spending in the UK for holidays, or you know, buying gifts for family members in the UK if that’s what you so we should do with the money. But I guess my underlying point would be that that does need to be reported to the ATO as part of your worldwide taxable income.
Brenton Ritchie:
Alright, thank you. We’ll keep the Q&A up guys. We’ve, we’ve run out of questions in there at the moment. So, we’ll keep it up for another couple of minutes. Just see what comes through and I will probably drop two other common questions which come through and Dan happy for you to add to this.
So common question that comes through is around the length of time that it can take for a pension transfer to come across, and Dan spoke around non-concessional limits and obviously 110,000 for a year or 330,000 for a bring forward of three years into one. So, let’s say someone has a $800,000 balance (Australian dollars), which is going to come across. It’s not possible for us to bring that across in one hit. So, it would be staged over multiple years. So that’s a common question we get asked is how long will that take before my funds would be in Australia? It’s certainly in the first initial period of time. Call it, if this was year one now, prior to 30th of June 2024, we could look to bring, say, $110,000. And across post 1st of July, we could do $330,000 that would use our next three years’ worth of contribution eligibility for non-concessional and then come 2027 / 2028, we would obviously then be saying we’ve got another allocation of up to $330K that we could use.
Yeah, it’s not necessarily possible for every client to be able to bring everything across in one hit. It would be staged over some years or utilising other strategies that the team could put in play to try and bring those funds over in other means with pension commencement, lump sums, et cetera. So that’s a common one which we get asked at times.
Dan. ‘Clients are returned to the UK, so if you transfer a UK or pension to Australia and then move to the UK or move back, return to the UK, what typically happens? The clients transfer the Australian super back. What typically happens?’.
Daniel Ash-Wentworth:
So, if you undertake a transfer to a QROPS and you are no longer resident in that country, of which the QROPS is located, then unfortunately you would be subject to the overseas tax charge I referenced earlier of 25%. So, this is why we strongly recommend that if you are looking at a potential transfer of UK pension across Australia your intentions need to be to live here, not just in the immediate but also longer term. Otherwise, you could be subject to these tax charges later down the line!
Brenton Ritchie:
Perfect. Thanks Dan. Quick fire one, UK state pension left in the UK bank account, does it still receive yearly CPI increases if I’m an Australian resident?
Daniel Ash-Wentworth:
No, I’m afraid not, because it’s not your bank account that dictates whether you receive that CPI increase, it is your country of residence, I’m afraid.
Brenton Ritchie:
Bearer of bad news for some of these, Dan.
State pension. A question again, ‘can you have the state pension in European funds and thus not have it frozen?’
Daniel Ash-Wentworth:
My belief is, and you’d have to double check this on the relationship between the European country in which are living and the UK, but some countries do have OR the UK certainly will provide that indexing to the UK state pension. I just unfortunately not in that position to sit here with any level of confidence and tell you which European countries that would apply to.
Brenton Ritchie:
Perfect. Thanks, Dan. One last quick one and then we’ll look to wrap up. So, assuming my UK company pension scheme is worth say £30,000 (I’ll assume pounds). How much will it cost to transfer to an Australian QROPS scheme from the UK company pension scheme? Really, really good question and certainly one which we don’t hide from – the process around pension transfers is not the simplest process in the world and certainly when we engage with clients, we are quite upfront around what it costs for pension transfer advice. For us to do the research in what you can and cannot do with your fund, and whether it is actually possible to do a pension transfer, and you would be for that advice £3,000 to get that advice and whether you could transfer or not or what would actually happen from there. And then certainly the next steps in the process the team would take you through what it actually takes to do that and engage in a transfer process to get the funds across after you work out whether you’re eligible to or not. And then the engagement on further Australian advice side of things as well. So, certainly as we start to engage and as you talk with Leo or Nick initially or then talk with the planning team, we’re certainly very upfront around what the steps are and what the costs are in that so we can take you through that in a in a one-to-one base and certainly give you that insight.
Ok. We will look to wrap up now. Thank you very much for the last comment in the chat there for someone who’s been dealing with bdhSterling over a year now, financial matters. Thank you very much, always positive to see and look forward to having you permanently in Australia in the next 12 months. Would be great to have you here. So, thanks again everyone who’s taking the time to come along and attend today. I’m certainly a lot of information in there and thank you to Dan for taking us through the presentation and giving us the technical aspects and helping to fill a lot of those questions at the end. So, we certainly trust the session and information has been useful for you. Just to recap a recording of the session will absolutely be available and be forward over the next 48 hours and if there are some questions which we haven’t got through to by the end this session, and we’ll certainly reach out direct with those specific questions.
I’d like to encourage you to please keep an eye out for the feedback surveys that comes out. We are certainly very open to feedback and having sessions that people will get valuable content from and want to be able to take action for. Your time with that would be greatly appreciated and that will come from surveymonkey.co.uk. And for those who are looking to seek advice on what your situation may allow, feel free to reach out to us at enquiries@bdhsterling.com. For now, once again, thank you on behalf of bdhSterling and wish everyone else a great afternoon or for those in the UK a great day ahead.
Thank you.
