If you are currently living in Australia, having previously moved from the UK, it’s likely that at some stage you have thought seriously about spending the rest of your days here.
As a logical progression from that idea, you have probably then thought about the financial logistics of such a step – particularly if much of your wealth is still in the UK.
Clearly, how much income you will have when you finally stop work will be a key consideration. You may have other assets that will go towards providing you with a retirement income, but it’s likely that your accrued pension funds will provide most of the money you need to live a comfortable life once you have stopped working.
You are probably contributing to a superannuation scheme – either through your employer or your own discretionary arrangement. But what about any retained pension funds you may have back in the UK?
Read about why transferring your UK pension to Australia by means of a Qualifying Recognised Overseas Pension Scheme (QROPS) could be so important, and very tax-advantageous.
You may be able to transfer your UK pensions to an Australian-based scheme
In very straightforward terms, a QROPS is a pension scheme based in a country outside the UK that HMRC has approved to receive transfers from UK pension funds.
If you have contributed to an occupational or private UK pension, you could move the pension fund offshore to a QROPS, subject to your eligibility and the type of scheme you wish to transfer from.
By doing this, you will be able to give yourself greater flexibility when it comes to drawing income from your fund.
Most importantly, you’ll create a highly advantageous tax scenario for yourself that could greatly enhance your wealth in retirement.
However, it’s important to understand that transferring to a QROPS is not necessarily a straightforward process.
There are strict criteria for QROPS
To qualify as a QROPS, the scheme you’re planning to transfer to must meet the requirements set by UK tax law, and must satisfy criteria involving taxation, regulation, and certain scheme conditions.
There are four key points to note:
- Before you consider making a transfer, you should check that the scheme you want to transfer to is a QROPS. Otherwise, your UK pension scheme may refuse to allow the transfer.
- If the receiving scheme is not a QROPS and transfer does take place, you may well find yourself facing an unexpected and unwelcome tax charge of 55%.
- You must already be resident in the country where the QROPS is based.
- You can’t transfer to a QROPS until you are age 55.
With regard to the final point, it is still important to review your UK pensions to ensure your investment strategy is correct – both now, and on a regular basis.
You may also want to consider consolidating all your schemes that you will ultimately transfer to a QROPS when you are eligible to do so into a single arrangement.
Not only could this reduce the administrative burden of managing a series of arrangements, but it will ultimately simplify the QROPS transfer process.
There are some clear benefits of transferring to a QROPS
There are some tangible advantages if you transfer your UK pension to a QROPS.
The key point to note is that you will create a highly favourable tax position for yourself. You’ll have benefited from tax relief on your contributions in the UK at your marginal rate. Then, once your pension funds are in a scheme under Australian tax laws, generally, no Income Tax will be payable on withdrawals you make once you retire.
Other benefits of transferring include:
- You’ll be taking income in the same currency you’re using on a day-to-day basis.
- You’ll avoid any potential currency exchange fluctuation you could incur if your fund was still in the UK.
- You’ll enjoy flexibility in the way you’re able to take income and lump sums from your fund.
- Your pension assets can be passed on to your heirs after you pass away.
You should take expert advice
Planning for a successful retirement is complicated enough for people who have assets in one country. If you’re thinking of retiring in Australia and have assets both there and in the UK, it adds a layer of complexity to an already difficult process.
As you have probably realised from reading this article, this complexity can bring both opportunities and threats. Get the process right and you can create a highly advantageous tax scenario for yourself that will boost your income in retirement and help you enjoy a comfortable lifestyle.
But mistakes can often be irrevocable and result in you suffering unnecessary financial loss.
Our experience of working in both countries means we are ideally placed to enable you to take advantage of the opportunities while avoiding the threats.
So, whether you are a few months from retiring or several years, there’s no time like the present to start your planning.
We hold licences to provide financial advice in both Australia and the UK and have offices in both countries. We provide a genuine “one-stop shop” for people moving between the two countries.
Get in touch
If you have any queries regarding your financial planning, please get in touch with us.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of ATO and HMRC legislation, which is subject to change.
