Transferring UK Pensions to Australia
When a person decides to leave the UK for good, they have two options on what to do with their pension funds. One is to leave it as it is under the care of a UK pension provider. The other option which members often choose is to transfer the funds into an eligible fund scheme on the new country of residence.
You might have saved a good amount of money when you worked or lived in the UK. Now, when you go to Australia, either as a returning citizen or as a migrant, you certainly would want to bring the money you’ve saved for years. Transferring your pension money from the United Kingdom to Australia is certainly possible but it entails quite a tedious process.
Recent legislation developments in the UK have made it more challenging for pensioners to transfer their funds to Australian super schemes. In 2015, a law was implemented prohibiting the transfer of pension funds before the applicant reaches the retirement age of 55.
Members need to have a self-managed superannuation fund (SMSF) or be a part of a specialized complying public offer super fund before proceeding with the transfer. The super account where you’ll be transferring your funds must meet the rules enforced on UK pension schemes. It should behave similarly to how UK pensions do.
To ensure the eligibility of the account where you’ll be transferring your UK pension, check if they’re registered on the list of Qualifying Recognised Overseas Pension Schemes (QROPS). Registration of QROPS is handled by the Her Majesty’s Revenue and Customs (HMRC). The list of QROPS is regularly updated on the HMRC website so it would be best to visit the site before you create a super account.
Australian super funds approved by the QROPS can accept fund transfers from members not exceeding the age of 75 years old.
For non-residents in the UK, the pension fund should have at least £20,000 (AU$31,500) in it to be eligible for a pension transfer. The maximum amount you can transfer to a QROPS is £190,000 (AU$300,000).
Pros and Cons
One advantage of putting your UK pension in a QROPS is the increased lump sum and pension income limit. You can get up to 30% of your pension as a lump sum under a QROPS compared to the 25% limit of UK pension schemes. This is only applicable, though, if you’ve been out of the country for at least 5 years. For those who choose to get a regular income stream, they can apply for a bigger monthly payment than the maximum allowed in the UK.
Funds transferred to a QROPS are exempted from UK inheritance tax. However, beneficiaries may have to face local inheritance taxes.
Receiving a regular income from a UK pension is subject to 20% tax, regardless of where the recipient lives. This means that even if you transfer your pension funds to a QROPS and you decide to receive an income stream from it, you’ll still have to pay for taxes.
Transferring your UK pension to an Australian super fund and registering it as QROPS certainly has its benefits and disadvantages. The process can be tedious and may take 4 to 8 weeks to complete. But the hassle is certainly worth it since you’ll be able to enjoy your pension without having to worry about anything else. Just make sure you study the fees, commissions, and other charges you may incur for transferring your funds to a super scheme to avoid being blindsided.