Since April 2017, thousands of UK expats living in Australia have successfully transferred their UK pension to Australia. With over 1.2m UK expats currently residing in Australia, this remains one area that without doubt needs more attention from both advisers and investors alike.
The transfer of UK pensions to Australia can be a complicated area and needs expert advice to get everything in place correctly. Not only do you have to navigate pension laws across two separate countries, you also need to make sound investment decisions that are largely dictated by your ability (or inability) to transfer your UK pension to Australia.
The following are some of the benefits that a UK pension member could gain with the correct advice:
The most significant benefits are:
- Control – Your pension will be transferred into your Australian superannuation fund which means that you will have much more control over the overall investment strategy and also over your retirement options.
- Return on Investment – The fact that you will have a wider range of investment options available to you should, in most cases, lead to better long-term results.
- Minimising Currency Risks – Having your retirement funds in the currency of the country where you plan to retire makes a great deal of sense. This will facilitate better long-term planning and will shield you against the possible negative effects of currency fluctuations.
- Minimizing Taxes on Your Pension
There are specific tax charges on your pension that you can avoid, or at the very least minimise, by transferring it to Australia.
These include:
- Income Tax on UK Pension Payments – As a permanent resident of Australia, you would be assessed for tax on any “foreign” pension income and it could be taxed at up to your highest marginal rate in Australia.
- UK Tax on Death – Should a UK pension member die, over the age of 75, the beneficiaries would be taxed at their highest marginal rates on the proceeds payable. This does not apply in Australia.
- Tax on Pensions Exceeding the UK ‘Lifetime Allowance’ – There is a limit to the amount that a UK pension member can accumulate in UK pensions. This is known as the ‘Lifetime Allowance’ and this is currently up to £1.03million (2018/2019 financial year). When a UK pension member accesses their benefits, any pension savings in excess of the LTA limit may be taxed at 25% (or 55% if taken as a lump sum).
- Overseas Earnings from a Foreign Investment Fund or Foreign Life Assurance Policy – An Australian resident may be taxed annually on an accrual basis.
- More Options in Retirement – Australia has one of the most advanced and diverse pension systems in the world. This covers not only investment options, structure but also the way in which benefits can be paid.
As with all strategies, the first step in deciding whether to transfer your UK pension to Australia is to determine whether or not you are, in fact, eligible to do so. The second step is to then determine whether or not your pension entitlements in the UK are eligible for transfer. These two steps are explored in more detail in our eBook below.
In most cases, advice will be required in determining the answer to the above two issues. It is also important to know that if the benefit value of a ‘defined benefit’ is £30k or more, you will be required by the HMRC (basically the UK’s version of the ATO) to seek advice from an adviser who is licensed under the Financial Conduct Authority (FCA), who are the financial regulatory body in the UK.
We have found that the high degree of complexity on this issue has resulted in many UK ex-pats ignoring their UK pension funds potentially costing them thousands. For a comprehensive overview of UK pension transfers that covers; risks, benefits, eligibility, tax implications and the transfer process, please follow this link to access our free educational eBook.
