Why you could really benefit if you transfer your UK pension to Australia

Category: Australia & News

In last month’s newsletter you’ll have read about whether you could transfer your UK pension to Australia and, if you were eligible to do so, some of the steps you would have to take to make the transfer.

This month, you can read the follow up to that article, as we set out some of the important reasons why, if you’re able to transfer your pension, you ought to think seriously about doing so.

One important point you need to be aware of is that it’s not a decision to be taken lightly, so we would always recommend you seek expert advice before you act.

Bearing that in mind, discover five good reasons why you may want to transfer your UK pension funds to an Australian super.

1. There are big tax advantages to be gained by transferring your pension

While accruing your UK pension fund you have benefited from a highly tax-efficient environment.

Basic-rate tax relief on your personal contributions is automatically added at source, so for every £80 you contribute, the government add another £20 to your fund, without you having to do anything.

You can then claim higher and additional rates of relief through your self-assessment tax return each year.

However, when you come to start taking income or lump sums from your pension, with the exception of 25% of your fund that you can take free of tax, you are liable to Income Tax at your marginal rate.

Meanwhile, in Australia, a reverse scenario effectively applies with super funds. Your contributions are taxed, albeit for the most part at a discretionary rate, but generally no tax is payable on anything you take from your fund.

As a result, not only does transferring your pension create a “win-win” situation for you, but it also means that your retirement fund will likely go further, to help support your planned lifestyle and financial goals you set.

2. You can consolidate all your retirement funds into a single arrangement

If you currently have pension funds in the UK, it’s likely that they may be distributed across a series of different arrangements.

For example, you may have had schemes with different employers, as well as perhaps setting up your own private arrangements.

By transferring all of them to an Australian super, you’ll ensure they are all accessible in a single retirement fund, together with any additional super contributions you may make once you have moved to Australia.

This makes it far easier to manage and keep track of your fund, and also simplifies the withdrawal process when you start taking income and lump sums.

3. It can be far more convenient to have all your retirement funds in one country

Transferring your UK pensions to Australia would mean all your retirement savings are housed in your country of residence, making them much easier to manage.

For one thing, it can be beneficial to have them in the same currency and tax jurisdiction as where you’ll be spending your retirement years.

Furthermore, receiving income in two different countries and keeping track of any tax and regulatory changes that could affect you can be tricky and time consuming.

For example, if you started withdrawing funds from your UK pension while living in Australia, you would need to apply to HMRC for a double-taxation agreement, otherwise you could end up with a tax bill in both countries.

4. You mitigate the threat of currency risk

Transferring your pension funds from the UK to Australia also means you’ll remove the potential worry of fluctuating currency conversion values, and how they could affect your wealth.

The chart shows the UK sterling to Australian dollar exchange rate over the last five years.

Source: Google.com

During that time, the rate has fluctuated between AUD $2.08 and AUD $1.67 – a difference of almost 25%.

If you were retired in Australia and drawing regular income from your retirement fund back in the UK, such fluctuation could create uncertainty of income on a month-to-month basis.

5. You can potentially reduce the charges you’re liable for

Transferring your UK pension(s) could help you avoid any fees associated with accessing your pension overseas. Given the potential complexity of such withdrawals, these charges can be high.

Furthermore, the general management fees of the super you transfer into could be lower than those you pay in the UK, especially if you have a series of UK-based arrangements.

It’s important for you to get specialist financial advice

As you read last month, your decision about ultimately retiring in Australia is not a straightforward one and it’s important that you consider the potential risks as well as the positive factors.

For example, there are restrictions on the type of fund you can move your UK Pension to in Australia and these may not be suitable for all situations. Further, if there is any chance that you might return to the UK at some stage, then transferring your UK pension to an Australian scheme may not be the right decision.

Because of this, we would strongly recommend that you get expert advice with regard to all the necessary financial considerations.

By getting advice, you’ll give yourself valuable peace of mind, knowing that you’ve made an informed decision.

You’ll also have the reassurance that the choice you have made is correct and that you’ve taken the necessary steps to secure your long-term financial future.

Get in touch

As you’ve read, expert advice when it comes to transferring your pension is important. If you want to discuss any of the issues you’ve read about in this article, please get in touch with us.

You can also find out more about transferring your UK pension in our guide to this subject.

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 HMRC and ATO legislation, which is subject to change.