Unlocking the potential of your UK Pension in Australia

Transcript

Welcome everyone. Thanks to everyone for joining the team representing bdhSterling today as we present to you a great session outlining unlocking the potential of your UK pensions in Australia.

Making the most of your pension entitlements by having access to professionals with the most up-to-date and relevant information helps you to better understand what your abilities are for your pension funds and future retirement lifestyle goals. Today is about helping you to be more informed about opportunities and being aware to seek advice to help bring those to life. If we look at the general information

Before we begin, what I will take you through is a bit of a general information warning. The presentation today is based on Australian UK legislation as of the 1st of April 2023. It is general information only, it’s 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 seek tailored financial advice specific to your needs.

So, today’s presenters – I’ll apologise in advance, I’m having a slight difficulty with my camera – but my name is Brenton Ritchie, I’m the financial planning manager for the Australian division of our bdhSterling business. I’ll be here to help introduce and facilitate today’s session and help with the Q&A at the end. The most important person today is John Vailes, who is a financial planner from our West Australian office. John has over 10 years’ experience in the financial planning industry and has been an integral part of the bdhSterling team, providing advice for our UK and Australian clients and advice strategies over his time with us. He’ll take us through the main content you need to know about unlocking your pension potential.

So, today’s agenda. We’ve broken the session today into five key areas, the first being types of pensions and why to look to transfer. The second, QROPS, what is a qualifying recognised overseas pension scheme? The transfer process, so what it takes to transfer across, why advice is important, and where bdhSterling can assist in this. We’ll answer questions at the end, I’m more than happy to do that, so please feel free to type your questions into the Q&A section as we go along. We’ll try to cover as many as possible at the end. If we don’t get through all the questions, we’ll come back with specific answers to the questions you asked post the webinar. So, let’s get started with the first section. I’ll hand over to John now and he’ll start taking us through Section 1 – The types of pensions and potentially wider transfer.

Thanks for that Brenton, and good afternoon, everybody. So, to kick things off, what I want to do first of all is give you an overview to really make sure we’re on the same page as to what can be transferred, and what we’re talking about today when we look at a pension transfer. Now on the right-hand side of the screen, you will be able to see what cannot be transferred as well, unfortunately, and there are a few items there which I want to raise to your attention. So, what we deal with most commonly is actually going to be the type of company pensions. So, as the name suggests, these are going to be benefits that you’ve accrued with a given employer and they can come in two forms. They can be what’s known as a DC, defined contribution, AKA market links plan, but they can also be a defined benefit or a final salary plan. I’ll give you a bit more information on both of those on the next slide. Second to that, we deal a lot with private personal pensions. As the name sounds, it’s a policy which is in your own name, it is not linked to any employer. Finally, we have public sector defined benefit schemes. So, the important word in this line, is the fact that these are the funded type of schemes. What you’ll see is schemes such as the local government, these are the final salary schemes which have, in effect, a pool of money behind the curtains, and that pool of money can be accessed by yourself as a transfer mechanism, but typically they would go to a personal pension.

So, just looking at what cannot be transferred, and the most common query we actually get at bdhSterling is the UK state pension. Unfortunately, that is a non-transferable asset. The UK state pension, as many of you out there will already know, is very much linked to how many years of National Insurance contributions you’ve made. Like I say, with the unfunded public sector plans, there is no pool of money behind the curtain, there is no pot that they can offer you in exchange for your future income from that plan. So, that’s the UK state pension and it’s very similar for these government unfunded pensions. So, if you have worked in the past for the NHS, the armed forces, if you are a teacher, these are types of plans which, again, have no pool of assets behind the scheme and so there’s no availability to move out of that scheme. That means that when you do get to the normal retirement age of that given pension, the only option to you will be to take the benefits as a regular income and a lump sum.

What we then have company pensions that may have fallen into what’s known as the Pension Protection Fund. So, I do have a slide on the Pension Protection Fund in a few slides, but just loosely speaking, any employer that becomes insolvent, can no longer meet its obligations for its members and their pension, they would go into this quasi-government scheme, which protects the members and makes sure that the pension itself can continue, even if the employer is no longer in existence.

Numbers four and five in the right-hand column here are quite similar. So, if you’ve already started to draw from your company pension or you’ve purchased an annuity with your private personal pension money, you’ve already effectively entered a contract, which is a contract typically for your lifetime to guarantee an income each month or each year, and those decisions, unfortunately, cannot be reversed. So again, there’s no way to transfer that to Australia.

Now, I said I’ll give you a bit more information on the company pensions, so, when we filter those down, there are two types that we can be looking at. One is known as a defined contribution or money purchase, and, as you can see on the screen there, you and your employer would have put money into effectively a portfolio, probably invested in the stock market in some way or form, and the underlying fund growth will determine that terminal value. So, hopefully, you’ve been in a portfolio which has had positive returns over the timeframe and that will dictate what you can retire on. Option (B) so to speak, is what’s known as defined benefit or also final salary. As you can see, there’s a formula here which does look at that final salary when you left the employer, but also, the number of years you’ve had in that particular scheme, and that would give you a promised income in retirement of X amount per year. So, for you as the member, there’s absolutely no risk on how much – what the markets are doing behind the scenes, there’s no product costs to you. It’s a guarantee that the pension for you and probably your spouse will increase with inflation. So, all costs, all risks of this type of plan, are borne by the employer.

Now, what you can do is you can look at those assets, you can approach the employer and ask for what’s known as a CETV – a cash equivalent transfer value. That is a lump sum that they believe is a fair representation of your future benefits, and if you take that lump sum, you would forego all those benefits and you would move that lump sum into typically a private pension where you would have the risks of your future income stream because you’re no longer in a guaranteed environment. You’re now in a variable income environment, but you have flexibility as well. And so, there are pros and there are cons of considering that defined benefit transfer. Now, what I should note from the very start of this, is the fact that the FCA, the regulator here, do consider – and we fully agree – that these defined benefits are the golden nest eggs. There really shouldn’t be a reason — or clients really shouldn’t be looking to transfer unless there’s sufficient rationale and reasons that would benefit their long-term financial future. So, the default response from the FCA is no transfer is suitable, but there may be objectives that do require you to have a bit more flexibility, and perhaps even having the money in Australia, as we’ll come on to speak about. So, why might you consider transferring and being in Australia? So, myself, I’m in Perth with Brenton, many of our clients that are with us – and I’m sure many of the individuals that are on the call today – are going to be based in Australia, so one day you’re going to want to be spending Australian dollars as opposed to having GBP in your pension account. And as we all know, I’m sure, volatility can be a volatile thing. So, for every pound sterling that you might have at the lows that we saw in 2017, that was achieving only $1.60. And just a few years prior, it was buying over $2.20 worth of goods. So, having that assurance of the amount of capital you have in your superannuation is a really valuable benefit for your longer-term financial plan. We can really start to work with a more certain figure in mind as opposed to having two types of risk with your planning. One, is the investment risk. What does the stock market do? What does the portfolio return? And the second layer of risk would be the currency. If we can remove that currency risk, we can give you hopefully a much more certain outcome with a much narrower range of potential growth options.

So, there are other benefits to looking at these transfers. Now, when we speak specifically about defined benefit pension plans, anyone that’s got one of these types of pensions will know that there’s spouse’s pension associated with it. So typically, you would see 50% of your income during your own lifetime would be passed on to your spouse on death. Sometimes we’ve seen two thirds’ spouses benefits also, but it’s important to remember that on second death of both spouses, there typically are no assets that would pass on to the children. Unless the child is under 21 years old, typically, the pension would likely stop there. So, what we can look at is again a rationale for considering this transfer, which is to do with the state planning. Maybe you want to start to cascade wealth lump sums to your children, potentially even your grandchildren. Well, that’s not possible with a defined benefit pension plan, but maybe it’s suitable because it’s accessible under a money purchase pension plan or a superannuation.

We also look at the scheme funding deficits. I talked about the PPF two slides prior, if an employer is getting into financial hardship, every three years, what happens is an external actuary will come into the company, assess the pension, and they would look at the employer’s liabilities and they would look at the employer’s current assets. If there is a mismatch, what happens is there can be either a surplus in assets or a deficit in assets. If the deficit grows to such a large extent that the employer can no longer keep funding that defined benefit plan, then that pension would fall into this Pension Protection Fund. Again, this is this quasi-government scheme. I believe the current assets in the scheme, circa £39 billion, they run the pensions for hundreds of thousands of members, and what they’re doing is making sure that that pension you’ve probably paid into for maybe 20-30 years of your lifetime doesn’t disappear if the employee goes as well. There are downsides though. For a final salary falling into the PPF, the first downside is the fact that once it’s in the PPF, you no longer have that optionality to transfer away. Your pension assets are firmly fixed in the PPF and you only have the option at retirement to accept the income stream. The other downside is the fact that if your pension falls into the PPF before you get to your retirement dates, then you actually take a reduction in benefits, and typically that’s a 10% reduction compared to what your employer had promised you. Looking at the funding deficit, we can start to get an idea of whether there is a risk involved here, is there a rationale to start considering a transfer sooner rather than later to make sure that we don’t miss the votes on giving you that option to bring your assets to Australia?

Investment control, and this is talking about if you have your assets in Australia like you can do with your UK pension if it’s a defined contribution type, you can dictate, you can control how much risk you want to take with that. So, maybe you’re a very low-risk investor, so cash and cash-like products all the way through to something higher risk, which is maybe equity-orientated, or you can work with an adviser, like ourselves, and look at your longer-term retirement plan. How much capital do you need to afford the lifestyle that you want to live? And we can help you work out what that required rate of return between now and the date in the future would be. So, working out how much risk you really need to take in order to get to where you want to be. The next point here is all to do with Australian superannuation. So, many of you out there will already know, if you’ve passed your preservation age in super and you’ve retired, the income stream you can take is a non-accessible tax-free income stream. So of course, that’s where, ideally, we want to get every client to, because the value it adds to your long-term planning is huge. Unfortunately, it’s not as simple as going from the UK to Australia. There is a tax loss in this process. Now, talking quickly about how that tax works, there is no tax directly from HMRC in the UK, the tax is on the Australian side. The tax would be something called applicable fund earnings. The growth you’ve had on your UK pension plan since the date that you became an Australian resident would be taxed up until the points of transfer.

So, if you’ve had over that number of years a fund growth of £100,000, for example, that is your applicable fund earnings and it would be taxed accordingly. That – if you think of it this way – is your, kind of, entry cost to get your money into Australia in order to access that long-term tax-free income stream. The other reason why you might want to consider a transfer is simply to consolidate. Maybe you don’t want to hold assets in the UK and in Australia over your longer-term retirement plan. You want to consolidate, hopefully reduce your fees, and in turn, compound your total growth. So again, simplifying your affairs is another reason for considering this transfer. The downside is that it’s not always tax-effective or cost-effective.

So, I’ve talked just a few moments ago about this applicable fund earnings concept where there is a tax payable to the ATO on entry into Australia. That may outweigh the benefits that you get in the long run. And so, this calculation would need to be run in order for us to determine if it’s in your best long-term financial interests to move into Australian QROPS. The other reason why we might want to keep your UK pension where it is, is the performance. Maybe it’s seen some fantastic performance over recent years and we’d find it difficult to match that. Also, what we can typically find in the UK is that some older schemes especially had guarantees, so maybe a guaranteed annuity rate which we don’t want to give up. It’s worth keeping the plan there because the guarantees are that valuable. What we have seen from time to time is that some schemes impose an exit penalty, and if the exit penalty is of a certain size, then similar to the tax, it could offset those benefits that we would otherwise get. So, if there’s going to be a reduction to your long-term benefits in the future, we’d likely suggest to you that a UK pension transfer may not be in your best interests.

The final thing here is talking about final salary schemes specifically. So again, if the individual is not comfortable with managing investment risk, is not comfortable with having a product which is guaranteed and moving that into a variable product where we don’t know what the long-term returns are going to be, we don’t know what the long-term income will be achievable from that plan, then maybe the transfer isn’t in your best interests from the very beginning. And so that, again, is what we would sit down with clients, really just ascertain, help them understand all of these risks and all of the obligations and implications of such a transfer. So, let’s talk about what the options are. I should firstly caveat this slide. Quite recently the UK Government have announced from 2028 the UK pension age will go up to 57 from 55. So, there will be a change over the coming years, but for now, the age at which we can transfer a UK plan to Australia is 55. So, if you’re under that age, the options are twofold. One is, that you leave your pension in its current scheme because maybe there’s some good performance being had, or maybe it’s a very cheap product to run and there’s no need to move away from that just yet.

Alternatively, we can look at something called a SIPP or a personal pension. The SIPP is typically what we’d like to use with clients at bdhSterling, and it really allows what’s known as open architecture, a very wide investment remit to happen with your UK assets. To draw similarities, it’s very similar to a self-managed super funder here in Australia. Now, the reason that we like a SIPP – as you can see from the first two bullet points – is this currency control piece, so we can have that client, if they’re comfortable with the exchange rate, convert from sterling into Australian dollars, and remove that long-term currency risk from their financial plan. We also have options with a SIPP to invest in the AUD denominated portfolios that we build for clients. So again, very similar to running your superannuation, apart from it’s still in the UK for maybe a few years until the transfer does happen. We can start that process sooner rather than later and remove the risk that the currency will drop by the time you are 55. The other benefit there, like I said, with any other UK pension is the fact that your pension passes to your beneficiary 100% if you’re under the age of 75. There are some complications over the age of 75, where extra tax can be involved, but for simplicity, it’s 100% comparing that to a defined benefit pension more than anything where you only have the option for a spouse’s pension. The other benefit of a SIPP, again, it’s really just controlling that risk. How much risk do you need to take? How much risk do you want to take? And having that control of your portfolio. So, these are now the options for anyone who is 55 and above, and the term you may have already come across if you’ve done some research on this subject, is the QROPS, the qualifying recognised overseas pension scheme. Now, QROPS is the end goal, it’s where we would bring your money to, it’s the receiving scheme. A QROPS is effectively just a designation, at the heart of it, it’s still a superannuation.

The mechanism by which we come and transfer your UK pension from the UK to Australia is based on firstly, the applicable fund earnings, effectively the growth component of the UK pension which I mentioned before, but also, we have this – effectively a capital limitation called the non-concessional contribution. So, you may have heard of these before. Each year you can pay up to $110,000 into your superannuation. What you can also do is bring forward the next two financial years’ worth of these allowances and make a $330,000 contribution today. So, typically, the year one transfer process for many of the clients that we speak to is twofold. We’re looking at the $330,000 NCC and the applicable fund earnings as an initial transfer. Now of course, that would be down to your specific circumstances. Maybe you’ve already used up some of these allowances, but just so you know, that’s typically how we’d be looking at a transfer. The other option, of course, is maybe we leave the pension in the UK and work out a more efficient strategy via an income stream later on in your retirement. So, let’s talk now about this QROPS, because this is what confuses, I think, the majority of our clients. QROPS was a piece of legislation that was introduced – I believe it was the Labour government at the time – in 2006, and it actually came from a directive of the EU, all to do with capital mobility and the freedom of movement. So, it allowed people who had built entitlements up in the UK to retire abroad and take their pension assets with them. Now, what HMRC imposed at that time was that any QROPS that are set up must meet specific requirements in order to remain qualifying. As you can probably imagine, over the years that have gone by since 2006, there is legislation change. The governments do like to change things quite often. Going back to 2015, that was probably one of the years – this is just as an example – where there was the most change.

So, we had the change firstly in the unfunded government schemes – that was the NHS pension plan, the teacher’s pension, for example. They no longer allow transfers out of these schemes. So, that was the first big change in pensions. What’s happened since then as well is historically, a number of Australian superannuations were registered as QROPS, so almost all of the retail superannuations that you can see today in the market had the designation as QROPS. They could accept UK pension transfers inwards. HMRC didn’t quite like this. It didn’t sit well with them because under Australian legislation, if you’re 55 or below – 54 or below – you could still access your superannuation. Typically, it’s for financial hardship, like we saw through COVID. There are means and ways to get access to your superannuation which is not allowable in the UK and because of that, the UK imposed some extra legislation to say any QROPS out there must restrict benefits – or membership even – for anyone that’s under the age of 55.

So of course, every retail superannuation out there allows membership from any age effectively, and so they could no longer meet that requirement of HMRC. 1,652 schemes came off the list overnight. And as we stand today, there are only two available QROPS schemes in Australia, so the landscape has completely changed over the last eight or nine years. What happened in 2015 also, is the FCA did a review of these defined benefit pension transfers and they realised there’s actually a lot of risk involved for clients who maybe do not fully appreciate the long-term implications and the long-term risk of transferring away from that guaranteed income stream and into this variable and money purchase environment. And so, what they imposed was any CETV of more than £30,000 must have a financial adviser who has that specific skill set to advise them on whether it’s in their best interests or not. That’s not only for the member but also for the family potentially as well because of course, there are spouse’s benefits involved in a defined benefit pension scheme that have to be considered.

So, moving forward through time, the other notable change to QROPS was in 2017. Again, HMRC did a review of what’s happening with the QROPS legislation to date over the first nine to 10 years of their existence and they found there’s a small loophole. Individuals were transferring the benefits to a jurisdiction which had a lower tax regime, and they were taking their money out from a UK pension plan with less tax than they would have if it had remained in the UK policy. So, because of that, they brought in what’s known as the overseas tax charge. Now what has to happen is, you must be a resident of the country in which you bring your money to. So, for example, with us living in Australia, we have to remain a resident of Australia for at least five years, and I’ll go into that rule as well on the next slide. It’s not only from the UK side though where changes come. What we see as well is from the ATO’s perspective. So, we talked about the two mechanisms to bring a UK pension over, the AFC, the growth, and also the NCC, the NCC limit does change, so going back to the 2016/17 financial year, we had an NCC cap each year of $180,000. Then from July the 1^st, 2017 that went down to $100,000. So, you can imagine that’s restricted how much money a client can bring in, in any given year. We’re now back up to the point where it’s $110,000, so hopefully it does start to increase again but again, there are changes from that side. I also mentioned another change that’s coming in over the next few years, which is the UK pension age going from 55 to age 57. The benefits of a QROPS are, I would think, as you can imagine, so really, it’s having your money in the country in which you will live in, which you will retire, and hopefully having the money in Australian dollars.

The other benefits, though, are the fact that as with any superannuation – and again, I can stress the point that at the heart of it a QROPS still is a superannuation, so you’re under that legislation, your pension passes to your dependant completely tax-free, 100%. So again, there could be a huge benefit there from a number of individuals, especially if you’re looking at your current assets which are in the final salary of the scheme and the tax treatment benefits. So, the tax-free income, would be where a number of our clients want to get to, to maximise the efficiency of their assets and retirement. The other thing as well is not only can you bring your UK pension to Australia, but you can also consolidate. Maybe you’ve got a couple of other super funds already. You can consolidate those into the QROPS and again, streamline your superannuation assets, streamline your retirement provisions. The downside, I suppose, of QROPS is the fact that there are a number of rules, a number of hoops that we have to keep jumping through – or the clients would have to jump through – to ensure the QROPS is still compliant.

The main takeaway from this slide – which I would suggest is the key thing for really all clients out there – is the fact that there’s something known as the member payment provision period. Now, the member payment provision period is a timeframe in which UK taxes can still apply after the money comes across from the UK. It’s the longer of one of two rules. The first rule is five tax years from the date of the transfer. So, let’s say, for example, we could transfer your assets tomorrow. A UK financial year starts from the 6th of April, which means that the MPPP for yourself would start from the 6th of April 2024. It’s then five years from then. So that’s the shortest rule. The other rule is 10 years of non-UK residency. So, if you have just arrived in Australia and looking to transfer your benefits, that would be the rule which the MPPP applies to. In that timeframe, really what we’re looking at is making sure that your pension benefits are broadly in line with the UK legislation, i.e., you’re not investing into non-allowable assets, like a classic car or a residential property, for example, but also, that you don’t roll from a QROPS scheme to a non-QROPS scheme during that timeframe. If you do, then there are quite punitive, quite honestly, taxes incurred. The other rule as well is the 10 years from transfer reporting, so that happens irrespective of what member payment provision period you’re under, the reporting always has to happen for at least 10 years. So, that’s the technical side of the presentation, I suppose.

What I wanted to give you now is a quick overview of how the transfer process can look, and of course, it would start with a discussion. It would start with a no obligation, no cost discussion with an adviser at bdhSterling. And really, it’s just to have that initial chat with you to see if that type of service, that type of transfer, might be something that you’re going to get value from. So, what we do is review your options, let you know what you can do with your accounts, and whether it’s worth—or whether you felt it was worth you proceeding any further in those discussions. If you do find value there, then we would conduct a pension transfer analysis report and a full review. So, what this is looking at is, what your current position is, what your assets are, especially with regards to the UK pension, and what your options are. If there’s a recommendation to transfer into Australia, how does it look? What is the likely tax outcome of the AFE? What is the strategy to bring the funds over, especially if it’s a larger fund then it might have to be staggered over a number of years? But also, we can talk to you about, well actually there’s the option to release some capital before the money comes into Australia, so maybe that would help you pay down your mortgage debt a bit sooner, and there are these options to start to access the UK pension before the QROPS transfer happens. So, we discuss that with you. We would present that to you in quite a comprehensive report. And then of course, we welcome the fact that we would sit down with you and run through that just so you’re completely eyes wide open to all of the risks and all the benefits potentially that you could get from that transfer piece. If you want us to, we can then, of course, engage with the implementation of that plan and manage from beginning to end the entire transfer process. So, that would be dealing with the UK scheme providers that would be dealing with HMRC and the ATO, and also setting up a QROPS vehicle, if that’s part of the work that we’re doing for you. The reasons why we quite strongly believe that financial advice is required in this area is purely down to the fact that it’s such a complex area of advice. This is likely as well a pension that you have in the UK after many, many years of working for an employer and it’s a huge asset that you have. We of course – as you can see in the second bullet point there – don’t want it to be a non-compliant transfer because HMRC can tax that fund at up to 55%, so it’s imperative that we get it right. Having just that initial chat with us – like I said on the last screen – it’s really just understanding what your options are. Can you even transfer that UK pension that you might have in place? And having that initial consultation with us would likely steer you into the right direction, whether it’s possible or not.

OK, so a bit about bdhSterling, and many of you maybe have already been on our website to find out a bit more about us. So, myself included in this; we are a firm of dual licenced advisers. So, for example I’m a UK chartered financial adviser and also, an adviser in Australia, and so as a firm, we can really understand the beginning to end implications from a tax perspective, especially on the transfer mechanism to Australia. We are a UK chartered firm, which means that we have the skill set and the qualifications to provide advice on defined benefit pension schemes and also, as I’ve mentioned, we have the UK office and offices across Australia, so we can provide this advice under one single roof without the need to outsource to any external companies. As part of bdhSterling, we also give holistic advice. So, if you want this type of service then we can absolutely offer it. So, we’re looking at more holistic strategies in Australia to do with maybe superannuation retirement planning. That can involve cash flow modelling, and understanding what the assets are and what your likely retirement income is going to look like. We have the ability to provide you with recommendations around risk, which means personal insurance contracts. We also have a tax arm. So, whether it’s UK tax or Australian tax, we can refer you to bdhTax who can help you with that side of things. So most commonly for my own clients, I’ve referred our clients who maybe have a UK property and they still have reporting obligations back to HMRC. So, these are the types of services that we can really put under one roof to give you a one-stop shop.

What we’d say is that if there’s something today we’ve spoken about, which hopefully you find of interest, please do touch base with us, and you can see the e-mail address on your screen, enquiries@bdhsterling.com. Simply, we ask for a bit of information about your age, your broad retirement plan, just so we can put you in touch with the right adviser and we can take things from there.

So, Brenton, if you’re still on the call – which I hope you are – I think we’ll move on to the Q&A.

Perfect. I am still here and we’ll try and as we go through get the video working, hopefully it does work now. It pops back on. So, John, thank you very much for taking us through the contents of the presentation there and it is now time to answer some questions that have come through. So, a quick reminder for those who do want to ask a question. Please feel free to type your questions into the Q&A section and we will certainly try and answer as many as possible. If we don’t get through them, we’ll come back with any specific questions you have post the webinar. So, there are a couple in there already and John, I’ll give you the first one.

So, the question is “Currently over 65 years of age and not drawing a private pension yet. Can I take the 25% tax-free before moving to Australia, then transfer the remainder into a QROPS?”

It’s a good question and one that comes up quite regularly. If we were all sitting in the UK at this moment in time, I would say absolutely, we can take the 25% and there are no tax implications there. Unfortunately, we’re not sitting in the UK, we’re sitting in Australia where the ATO would look to tax any income or any lump sums you take from a foreign pension scheme. So, the answer is yes, you can take it, but there would be sizable tax implications payable to the ATO. So again, this is the type of strategy we typically sit down with clients for. We work out the best route to take lump sums out of the plan, and also by minimising the tax implications of those lump sums. It’s one that I would have to say we defer to a more in-depth conversation with you, which I can’t go into, unfortunately, on this call.

Perfect, all good. Next one, John, “I came out of a UK-defined benefit scheme and transferred to a SIPP. I am in drawdown but took a significant sum as a tax-free cash amount, which I’ve largely lived on in the last five years. How does the Australian tax on transfers get applied to the tax-free money, some of which has been spent?”

Sure. Okay, So similar to the last question, in fact. So, it’s talking about these lump sums you take from UK pension plan. So again, in the UK that would have been tax-free. HMRC wouldn’t have taxed it on exit from the UK policy. However, the way the ATO tax lump sums, it is down to what I referred to before, the AFE basis, typically. We would have to go through a calculation process to find out how much of that lump sum is taxable, but then that proportion of the lump sum would be taxed at marginal rates in Australia. So again, there is quite a lot involved to work out how much tax is payable, but it is taxable at marginal rates, effectively.

Excellent. This question here, we’ll make an assumption that it’s potentially staggering the move across to Australia, “When staggering the move, can this be done from the same UK scheme or is it best to split it in the UK first?”

So, for this one, it really does come down to the size of UK pension. If we can do it all under your NCC allowances, for example, then we would absolutely do it as a single tranche, a single transfer. We do come across though regularly, pension benefits which are in excess of $330,000 for example. In those scenarios, we would definitely look at splitting the pension out to phase the transfer across a number of financial years and I think reflecting back on the presentation there, John, there is a fair bit of strategy that comes into play of how to get, you know, larger amounts out of the UK to Australia for retirement planning and sitting in with those contribution requirements. So, it certainly is a lot of planning, a lot of strategy that comes into play, and some of those strategies can take place over five, six, seven, eight, or potentially even longer years, to get the funds across.

The question we’ve got here is a really, really good question. “You mentioned there are only two QROPS remaining. I understood only AESF would now qualify?”

So yes, there is a retail QROPS as well out there. So, that is called a AESF – Australian Expatriates Superannuation Fund – by no means is that a recommendation there. But just so you’re well aware, we can consider both as a potential option for any transfer.

To add to that, one of the things which John and the planning team will sit down with you and talk about is some of the things of what control do you want over investments, choice, being a trustee of the super fund, or is it more hands off, you’d rather put that in someone else’s hand and that helps determine with a client where in their best interests their funds should apply. So, it’s not just clear cut. Whilst there’s two options that we have at the moment, there’s different benefits that you get from each one, and having that conversation will help to determine which way that might actually go.

John, the question here is, “Can you transfer an SIPP that has already been drawn down from a BCLS that was already taken, for example?”

So, this is where there can be some complications. So, in the UK, anytime you take the BCLS, it’s what’s known as a benefit crystallisation event. Effectively, the way to think about it is the rest of your residual pension plan has been almost glued together. You can’t now split that up into component parts, depending on the size of that residual balance, we may or may not be able to transfer it across under your non-concessional allowances. Now again, if that is the situation that you’re in, I would suggest having a conversation with an adviser because there are more complex strategies which we haven’t gone through today which can maybe alleviate that issue if that is an issue for yourself.

Thanks, John. I know you’ll like this one, I think you’ve been waiting for one to come through along this line. “How can we benefit from changes to the UK lifetime allowance in the 2023-2024 tax year?”

Sure. So, I can’t actually see that question, but the LTA effectively has been removed from April, just a few weeks ago. It’s no longer a real issue for us moving forwards with regards to our financial planning. So, it was quite an unexpected move by the Chancellor to remove the LTA. Just so you all are aware, previously we had just north of £1,000,000 which was the total amount of superannuation UK pension you could accumulate, any excess would come under an additional taxation arrangement. Now that cap, if you like, has been removed completely, so we can move assets which are substantial without that tax implication moving forwards.

Excellent. Thanks, John. I’ll give you a quick one and I might try and bunch the next question together because I think there’s a similar theme coming through for one of them. So, we can’t transfer our state pensions, so the question is, “How do we access our state pensions and do we contact HMRC directly?”

Sure. And the answer is yes, you do want to let them know where you’re living. I do believe that they will contact you around about six months prior to your normal retirement age with the state pension, but otherwise, it’s worth you contacting them just in case there are any delays in their post, which they do still like to do things by letter these days.

Perfect. So, John, I’ll get you to jump onto this question, but it’s a bit of a two-part question. So, the first bit is, for defined benefit schemes, “How is the growth assessed from date on moving to Australia to transfer?”

1. It’s a good question. Obviously, with a money purchase or a defined contribution, we have a fund value. So maybe your fund has grown from £100,000 to £200,000 over that period of time, very clear, very concise. We know exactly what the growth has been. With a conscious defined benefit, what you’ve got is an income stream. There is no fixed policy value, so to speak. So, what we’d be looking at is what have the inflation rates been over the period that you’ve been an Australian resident. And we would discount the cash equivalent transfer value by those inflation rates to come to effectively a discounted value back to your date of arrival.

Perfect. The second part to that question is, “If funds are transferred in two lots or potentially more, is there a time restriction based on per lot or the whole sum? For example, can the first 330,000 be accessed after five years then the next lot after eight years, say?”

So, this is actually quite a common misconception with regard to when you can access QROPS money. So, as I was, I suppose, saying through the presentation, at the heart of it, we are still dealing with the superannuation. So, it’s still the superannuation access rules that we are looking at here. So, if you’ve gone past your preservation age, if you are retired, you can still access that money, even if it only transferred, you know, a year ago, let’s say. The QROPS restrictions do not prevent you from taking an income stream. There are potential tax outcomes if you don’t go down the income stream option and instead take lump sums, for example. But again, this is a more complicated area of the QROPS planning, which we haven’t gone through in today’s presentation. But you can still access your fund. HMRC don’t want you to live off nothing if you’re wanting to retire in a foreign country. Hopefully that answers that.

There was a last part to that question. “Lastly, what happens if one is retired before the second lot are transferred?” I think you’ve probably given a bit of an indicator in there as to what applies.

The next question: “I already have an Australian Super Fund where the bulk of my super savings are. Can I transfer my UK SIPP, or employer fund savings, to my Australian Super Fund?”

Unfortunately, not. I mean, it does depend on what super fund you’ve got, but unless it’s a registered QROPS, then you cannot transfer that UK plan into your existing super.

Some restrictions there “Are there any penalties for drawing funds once the transfer is complete? If I was 65 years old in Australia for 30 plus years and a citizen for 30 years, are there any penalties if I were to then withdraw my UK funds?”

Absolutely not. So again, the concept on the QROPS legislation is to equalise the benefits between what you could do if the money was still in the UK and what you can do within the QROPS. So, there is no intention here for HMRC to penalise you if you’re already retired. You can absolutely still take an income stream. they’re only trying to implement the fact you can’t do in a QROPS scheme what you could not do in a UK pension scheme. So, you know, income, if you’re retired, it’s absolutely fine. There are no issues there whatsoever.

Perfect. Thanks, John. “Any views on CETVs recovering following interest rate rises, which has seen the value of some of the pension pots reduced considerably over the last year? Which we have obviously seen quite a bit” Any views on that, John?

Not particularly, If you look at any economic commentary, I don’t think we’re going to go down to the low interest rate world that we’ve seen in the last decade, as you all likely know, that many economies had interest rates at close to zero and there’s an inverse relationship between interest rates and CETV values, so as these interest rates have gone down from the early 2000s to effectively zero, CETV offers the values that the pension schemes we’re going to pay members to extinguish their rights to this plan, went up considerably. We’re now coming into a more, I suppose, normal – if I can call it that – environment where we are expecting interest rates in the long run to be anything between 2% to 3%. Obviously, at the moment we’re a bit higher than that. But again, this is more of an economist question, I suppose. We’re not going to try and guess where interest rates are going to go. What I would say is that if the transfer is in your best interest now, then we shouldn’t try to second guess where the economy and monetary policy will go in the future.

Perfect. Thanks, John. This is an interesting question because there’s probably limitations on both sides of the expanse of water for this. So, “Is there an age limit on transfer if I was turning 70 this year but still working, paying super in Australia, not yet drawing a UK company pension?”

I think, John – happy for you to expand – but there are probably limitations on both sides as to when you can cease transferring out of the UK, but also when Australia can—your contribution eligibility requirements will cease in Australia as well, which, sort of, pan out at 75 years of age. So, one of the other restrictions you’ll have is how much fund you can get in to Australia over that period of time as well, which those limitations on non-concessional contributions would start to reduce as you got closer to 75 years of age. John, is there anything else you’d add to that from a UK perspective?

No, perfect. I think the main limitations here are on the Australian side actually, and it is to do with the non-concessional allowances the member might have in the run-up to their 75th birthday, and making sure hopefully there are enough allowances to get that UK pension in time.

Perfect. This is a really good question because again, there’s, I guess, a broad answer for this on a few different fronts “Wondering what protection there is for superannuation funds in Australia versus the UK?” John, do you want to have a crack at that one first and I’m happy to help fill in some gaps on it?

Sure. So, in the UK, there is protection, especially if you’re in personal pension plan, which is considered typically as a life policy where your benefits are guaranteed up to 100% by the government, and there are other types of financial services compensation schemes. That doesn’t apply to Australian superannuation. You do still have the ability to have the $250,000 deposit safety net, I suppose, but there is no similar scheme – and Brenton, please do step in here if you know of anything else – regarding the superannuation itself. It’s down to the underlying assets that you’re holding within that policy.

Correct. Your superannuation providers, insurance providers in Australia, need to have some form of backing from statutory funds, especially insurance providers, to be able to pay out on claims and whatnot. Superannuation funds are more market linked in an investment. They’ve got mandates of what’s required for them to do and manage those funds to try and minimise the fact of, you know, run on funds and values dropped dramatically or there’s no value in those funds at the end of the day. As John said, the government guarantee on bank deposits is there now within self-managed super funds. There’s the ability to gain benefit from that within retail funds. There are retail funds which have the ability to have some capital guaranteed funds within them, which would give that ability to go look, you might not get much return on it, but you’re not going to get a negative return from that fund. So, there’s probably different things there from an actual whole industry point of view or legislative point of view from a protection piece, but there’s also, from an underlying investment point of view, the potential for a protection piece in there. Again, it probably comes down to talking with individual clients about what they’re looking to achieve and whether the cost – or the opportunity cost – of some of that protection piece is worthwhile compared to what they’re trying to achieve longer term from those funds.

Couple more left. “I’m 55 in three years’ time, what is the timescale that I should make inquiries with you as to my best option in accessing my local government pension?”

I’ll leave the last bit, “what are the costs for advice”. We’ll leave that one today, but what’s the timescale do you think there, John? Is it best to jump in front of a planner and start to talk about what that process looks like?

Yes, this is a good question and I would quite honestly say the sooner the better. There’s no requirement, there’s no need to wait until you’re 55. We talked a lot in the presentation about the currency control. So, if we can implement that currency control sooner rather than later, we have again more certainty with your longer-term plan. We can then look at the CETV today, the cash equivalent transfer today, and capture any values that they’re offering you. So, we don’t know how things are going to go in the future. We don’t know how CETVs are going to be reflected in the future. We don’t know what the currency is going to do in the future. So, by approaching an adviser today, we can start removing those longer-term risks from your plan and then be in a good position to transfer your assets when you do come to be 55.

Perfect. Thanks, John. And I’ll pick up the cost of advice piece. Certainly, we’re open and transparent on the cost of advice and we let clients know before we go into the process what it’s going to cost. There are different price points. I think if you engage John or one of the other planners, we can take you through that and certainly be upfront of what those costings are, but there are different costs for different aspects that happen. So, it’s very hard to say that it’s going to cost X number of dollars. Each fund might take different amounts of transfers to get across, so, we certainly go through that in an open and transparent manner with all clients.

The question here, John, is, “Can the six-month rule on AFE be used multiple times in a lifetime if I have had several periods of residence, i.e., within six months of each time becoming a resident?”

Unfortunately, not. The six-month rule is effectively an exemption from having to pay the tax on the AFE. As you can probably imagine, the ATO aren’t that kind. They’re not going to allow you to have multiple tax-free windows, so there’s only one time that we can use it.

We’ll do one last one. We’ll talk about pension transfer at times, but I think pension advice is an extremely appropriate phrase to put in there as well. So, the question here is, “I have over £1,000,000 in UK pension age 70. I guess there’s not enough time before age 75 in order to complete the transfer?”

I think if you are looking to transfer that fund across, but I think the other bit to look at is even if you’re still accessing some of those funds from a UK point of view, from a planning advice strategic aspect, what is that income potentially going to provide for you over the longer period of time as well? And how can what happens for what may be able to be transferred to Australia be complemented by what’s still coming from the UK? And how do we make that in the most effective tax-effective manner happen for clients? So, I think there is an important piece in there even if the time is going to be restrictive, that there’s still the great ability to gain advice and see how that whole scenario could play out.

I’ll just add to that Brenton. It’s not necessarily the fact that we can’t assist if that is the scenario, there are definitely other strategies we haven’t talked about on the call today which could be suitable for that particular client. And so, it’s well worth your time to have a conversation with one of the advisers here and explore those potentially more complex strategies which could benefit you.

Perfect. Thanks again everyone who has taken the time out of their day to attend and we certainly do appreciate it, and we trust this session and the information provided has been useful for you. A recording of this session will be forwarded to you over the next 24 to 48 hours and we’ll reach out directly if you had any specific questions that we weren’t able to get to today.

Hopefully, we did get through all those pertinent ones there. I’d encourage you to please keep an eye out for the feedback survey as it comes out. Your time with that would be greatly appreciated and that will come from surveymonkey.co.uk. For those who are looking to seek advice on what your situation may allow, please feel free to reach out to us at enquiries@bdhsterling.com. Once again, on behalf of bdhSterling, thank you to John, and thank you everyone for your time today. Thank you.