Pension Transfers To Australia – Guide For Over 55’s
The HMRC (Her Majesty’s Revenue and Customs) is the entity in the UK which determines the rules applying to overseas pension schemes for the acceptance of a transfer of a pension scheme benefit from the UK.
These schemes are known as QROPS (Qualifying Recognised Overseas Pension Schemes).
In the second quarter of 2015, the HMRC announced a change to the rules associated with QROPS, which led all but one Australian QROPS scheme to be taken off the list.
This guide covers off some of the main questions associated with this development, as well as an outline of options which are now available for Over 55’s.
These significant changes to the QROPS list followed on from a new requirement imposed by HMRC in the UK that for a receiving pension/superannuation scheme to remain QROPS compliant the scheme needs to satisfy a new condition.
The new condition is centred on the QROPS not allowing any scheme member to access their pension funds for any reason prior to age 55, aside from on the basis of ill-health. Australian QROPS rules have allowed members to access their funds from Australian superannuation on the basis of other factors, including significant financial hardship prior to age 55 – a condition which is no longer allowed under the new rules outlined by the HMRC if the scheme is to remain QROPS compliant.
I have yet to transfer my pension fund to Australia. How do these rules affect me?
To enable a transfer of a UK pension fund to be made to Australia, any such transfer needs to be undertaken into a scheme which the HMRC deems to be QROPS (now ROPS) compliant. If a transfer is made to a scheme which is not compliant, the transfer would be deemed by the HMRC as being an unauthorised payment and excessive tax penalties would apply (likely to be up to 55% including related surcharges on your transferred fund balance – payable in tax to the HMRC). We do not recommend that you attempt to undertake an international transfer of your UK pension scheme benefits to a non-QROPS scheme due to these excessive tax penalties.
Does it matter if I am not 55?
As the rules introduced by the HMRC impact the receiving superannuation scheme as a whole, the scheme will need to be compliant to be able to receive a transfer of benefits from the UK. As such, regardless of your age, if you are yet to have the transfer of your pension funds completed to Australia, you will still be caught by the change in these rules.
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What if my UK pension funds have already arrived in Australia?
Assuming your funds were transferred to Australia prior to 5th April 2015, it is expected that these rules will have no impact on you. We are still awaiting clarification on the stance from the HMRC for any transfers to Australia which were completed in the interim period between 6th April 2015 and the date the Australian schemes were taken off the QROPS list.
How often is the UK QROPS list updated?
The list is typically updated twice each month.
Was Australia the only country impacted?
No. Many countries were impacted by this change in the HMRC’s QROPS requirements, with a significant reduction in the number of schemes deemed as being compliant.
The Way Forward
Over recent months, the number of Australian QROPS available to accept transfers in from the UK has been increasing.
The QROPS approved schemes which are available for transfers are comprised of:
a) Some schemes for government employees; and
b) Self Managed Superannuation Funds
As such, it now becomes a real team effort, between the UK and Australian advisers where any pension transfer is to be considered.
The rules have changed however, with many schemes now requiring sign-off from a UK based adviser with pension transfer permissions, in order for any transfer to be possible.
Which schemes must now have UK pension specialist sign-off?
If you have any of the following scheme types, you will NOT be able to have your funds transferred to Australia without assistance from a UK based pension adviser who is fully regulated by the UK’s Financial Conduct Authority (FCA):
- Final salary/defined benefit pension schemes valued at over £30,000,
- Pension with safeguarded or guaranteed pension benefits of any type, valued over £30,000.
Further, any schemes which exceed Australia’s non-concessional contribution limits (ie A$180,000 or $540,000 over a 3 year roll-up) will also require a UK pension adviser to be involved, to restructure your UK pension fund in readiness for a transfer to Australia. The majority of Australian pension schemes will not accept a transfer in of pension benefits where these limits are exceeded, so any restructuring will need to happen before the fund arrives in Australia.
A variety of strategies exist to move your funds to Australia if you are aged over 55. To have one of these put in place:
i) You will need to have a UK based adviser with relevant pension transfer permissions providing you with signed off advice on whether or not a transfer of your pension fund in in your best interests. The schemes will not accept a pension transfer request without this and the adviser will need to sign in wet ink that they have provided this advice.
ii) The UK adviser in the majority of cases, will also be required to sign off in wet ink to instruct the scheme to transfer your pension benefits.
How can my Australian adviser help?
From the Australian end, you will need to have a pension scheme established which then obtains approval for the acceptance of the transfer of pension benefits from the UK.
In the current market, this is likely to require the establishment of a Self Managed Superannuation Fund, which then applies for and obtains approval from the UK.
Once this approval has been granted and notification of such has been provided to the UK pension scheme administrators, any subsequent transfer to Australia can be undertaken.
We would be pleased to work with your Australian financial adviser if required.
Why do UK advisers now need to sign off on pension transfers?
- Final salary and safeguarded benefit schemes have inherent benefits built in which can be extremely valuable and in many cases worth much more than the transfer value offered.
- Think about it – How many Australian financial advisers do you know who could replicate the calculations undertaken by a UK pension scheme Actuary to determine the valuation for transfer of your final salary scheme benefits? I’m yet to find one – so if you do, let me know.
- In the UK, pension specialist advisers are required to undertake specialist training to advice on UK final salary schemes (ie most UK financial advisers have not even undertaken this training as it is very complex).
- So, how could an Australian financial adviser (as an example), truly advise you on whether a transfer of your pension benefits from the UK will be in your best financial interests?
- Many UK pension schemes have funding deficits (ie they are underfunded). As a result of this, and the need for the scheme Actuary to protect the overall funding position associated with the scheme (so the scheme has the required assets to pay out its pensioners), many transfer values offered by UK pension schemes include an inherent transfer out penalty, or have a very high yield.
- This means that in many cases, you could be better off by simply taking the pension from the UK, instead of having the fund transferred, even after tax differences have been allowed for.
- UK advice is required so you can be properly advised on what is actually most financially beneficial for you. Any such advice would always include a full consideration of your overall financial circumstances and any meetings needed can be done by phone or Skype.
So how do I move forward in practice?
1. Ascertain whether or not a transfer of your UK pension benefits is in your best financial interests.
There is no point simply having a transfer undertaken if it is not in your best financial interests. It is important to know this upfront. As indicated above, in many cases this advice must now be provided by a UK pension adviser.
2. Assuming the advice is to transfer, then proceed with the transfer process:
- Have a Self Managed Superannuation Fund (SMSF) established – based on current market situation.
- Obtain approval from the HMRC for the recognition of your SMSF on the Recognised Overseas Pension Schemes List
- Provide copies of the approval certificates and any supporting documentation to the UK
- Have the UK adviser sign off on the advice provided
- All documentation is then submitted to the UK pension scheme (usually done by the UK adviser at the same time as they are signing off)
- The transfer to Australia is then undertaken.
So how long does this all take?
From start to finish, we recommend that you allow 6 months from the point that the UK adviser commenced work for you.
Remember that there is no point whatsoever in working through step 2 (the transfer process) as above, if you have not found out whether a pension transfer is actually in your best financial interests. You worked hard to accumulate your pension, so why suddenly risk throwing some of it away without knowing the best course of action?
Further, whatever anyone says, there is no guarantee that the transfer WILL happen. There is always a risk of further rule changes. As such, it is worth commencing the process as soon as possible under current rules so you are not caught out.
How can we help?
Prism Xpat has been specialising in UK-Australia cross border pension issues and undertaking transfers of pension benefits on an advised basis since 2002. Over that time we have worked with many hundreds of clients and thousands of UK pension schemes.
Each of our clients has received advice and a formal recommendation of how to proceed with their financial best interests in mind.
Quite simply – This is not a part time job for us. It is what we do and the reason we were established.
Every report we write for every client has been reviewed by a UK Actuary, who is an Australian citizen, who has been taught how to value a UK pension scheme.
In addition, we have advisers in the UK and a team of people permanently located in each main Australian city ready to assist you with the Australian end.
The result of working with Prism Xpat is that you can be confident you will be receiving the highest level of advice and a seamless service from the undisputed market specialist in this area.
To start the process, either call us to discuss your situation or simply fill in the form attached and return this to us for a no-obligation free initial assessment of your own UK pension situation. We will then call you with the results to personally take you through the options you have available.
We look forward to working with you.
Darion Pohl FIA FIAA
Director and CEO