If you are moving to work and possibly to retire in Australia then it is financially wise to consider the benefits of transferring your pension to a QROPS (Qualifying Recognised Overseas Pension Scheme), in Australia, taking into account the annual contribution limit permitted to Australian Superannuation schemes.
If an individual Australian resident wishes to contribute to an Australian Superannuation scheme, with their own after-tax money, this is known as a non-concessional contribution (NCC). The Australian Tax Office (ATO) caps the level of contributions permitted. Included in this cap are transfers into Australia from UK pensions. Details of these limits are outlined later in this article. If you are considering transferring your UK pension funds to Australia, it is important to seek advice from a pensions’ specialist because of the complex rules, in Australia, regarding permitted amounts into Australian Superannuation schemes.
There have also been some significant changes, brought in by Her Majesty’s Revenue and Customs (HMRC) to the QROPS legislation surrounding UK pensions transfers and QROPS in Australia since 2015 – that would require pensions’ specialist advice. The changes included Australian schemes not being permitted to receive UK pension transfers for individuals under the age of 55 – following HMRC’s scrutinizing of Australian Superannuation schemes’ capabilities of meeting the UK’s “Pensions Age Test”. Only certain Australian Superannuation schemes’ trusts are written to meet the Pensions Age Test and only a specialist adviser, familiar with the rules, can recommend these schemes to receive a UK pension transfer.
As well as the Pensions Age Test there is other strict criteria for QROPS schemes and a list of qualifying providers are available at the HMRC website.
Furthermore, HMRC introduced an Overseas Transfer Charge (OTC) in March 2017, for UK pension transfers to QROPS that are set-up in a country or jurisdiction other than the country or jurisdiction that the member is living in. This tax charge is 25% of the transferred fund. Although someone resident in Australia would only seek to transfer to an Australian QROPS – and therefore would not be effected by the tax charge initially – this tax charge could retrospectively apply if the individual leaves Australia within 5 years of the transfer. It is important to take specialist pension advice to understand issues such as these.
Although it is possible to leave your pension in the UK, this does have tax implications. For example, if you leave your UK pension scheme in the UK, you may still be taxed in the UK on any income from your UK pension, if you are resident under a temporary visa category in Australia. If you are a permanent resident of Australia, you would be assessed for tax in Australia on this income. This is less favourable than the tax-free nature of any benefits paid from an Australian Superannuation, when retired from age 60.
Non-Concessional Contribution Cap (NCCC)
New rules governing QROPS and annual pension contribution limits for Australia are to be introduced in July 2017.
From 1st July 2017, the NCCC (contributions made by an individual with their own after-tax money) is A$100,000 per Australian tax year. If a member is under the age of 65, it is possible to ‘bring forward’ two years’ worth of non-concessional contributions and transfer in A$300,000 in one tax year, from the UK. The member would have to wait two complete Australian tax years before they can make a further transfer in. If you overpay, your fund must return the excess amount within 30 days. As previously stated, transfers in from UK pensions are included within this cap.
The changes to the Australia super scheme are:
- A yearly cap of $100,000 per annum
- A lifetime contribution limit of $1.6 million
At bdhSterling we are experienced in helping clients move their pension schemes overseas. When you have worked hard to save for your pension, you don’t want to find that you have made the wrong decision about where and how to relocate your pension funds.
The changes in detail
According to the Treasury in the Australian government:
- From 1 July 2017, there will be a $1.6 million transfer balance cap on the total amount of accumulated superannuation an individual can transfer into the tax–free retirement phase. Subsequent earnings on balances in the retirement phase will not be capped or restricted.
- Savings beyond this can remain in an accumulation account (where earnings are taxed at 15 per cent) or outside the superannuation system.
- Transitional arrangements will apply. People already retired with balances below $1.7 million on 30 June 2017 will have 6 months from 1 July 2017 to bring their retirement phase balances under $1.6 million.
- The transfer balance cap will be indexed and will grow in line with CPI, meaning the cap will be around $1.7 million in 2020–21.
Getting the best advice
The rules around QROPS are constantly changing, which is why it is so important to get specialist advice. At present, UK regulations permit you to transfer your pension to Australia if it is a company pension or personal pension, or if you are already drawing your pension directly from your defined contribution (DC) pension fund (known as drawdown).
It may be that you are moving to Australia for work or family reasons, but are not yet 55 and are therefore unable to start claiming your pension under UK or QROPS rules.
In these circumstances, bdhSterling can advise you on what to do until you reach age 55. When the time comes, we can also give advice on UK pension transfers to Australian QROPS, bearing in mind the annual pension limit for Australia as well as the other considerations. Get in touch today to speak with one of our expert financial advisers.