UK pensioners over 55 years of age can transfer their funds to Australia
The UK gov’t provides an option to transfer their pension funds to another country under the QROPS. This gives UK pensioners more freedom to choose where they want to retire and take their savings with them.
This is also the most suitable option for Australians who worked in the UK and have earned a substantial amount of pension. This scheme allows them to avoid, or at least minimize UK taxes when they move their funds back with them to Australia.
QROPS – A short history
Qualifying recognised overseas pension scheme (QROPS) is awarded to pension schemes outside of UK by Her Majesty’s Revenue and Customs (HMRC). It allows UK pensioners who are living in a different country to transfer their UK-based pension to a qualified pension scheme in their preferred location.
Back in July 2015, the HMRC delisted all QROPS in Australia except for the Local Government Australian Pension Scheme. Thousands lost their qualifying status due to failure to meet the HMRC’s age requirements. On a global scale, over 82% of pension schemes became unqualified.
To remedy this shortcoming, the Australian government worked with big pension companies to regain their QROPS. Raising the age requirement for transferring funds, most Australian pension schemes and super funds now oblige pensioners to be at least 55 years of age to be eligible for a QROPS transfer.
Previously, supers have lesser access restrictions for people under 55 years old, allowing them to tap their funds for illnesses, accidents, and other financial hardships. This is not allowed in the new ROPS policy implemented by UK’s HMRC. If a UK citizen transfers their pension to an Australian super that’s not a QROPS, a penalty tax amounting up to 55% of the total amount can be applied by the HMRC.
Not everyone is allowed to transfer their pension schemes from the UK to Australia or any other country. The following should be considered if you want to be eligible for a QROPS transfer.
- The scheme you’ll shift to should be a member of a qualified super ROPS on the public service sector. This includes the Local Gov’t Superannuation Scheme, Public Sector Super Accumulation Plan, Australian Defence Force Super Scheme, Public Sector Super Scheme, CSS (Commonwealth Super Scheme), and Military Super and Benefits Scheme to name a few.
For transferring to a private sector, it should be included in the list of over 55 SMSFs registered for ROPS.
- At least 55 years of age, has an Australian permanent resident status, satisfies the work test required by the Australian gov’t, and will be transferring GB£100,000 or greater.
- Pension should be private or occupational. Pensions provided by the state are not allowed to be transferred.
- The fund hasn’t begun paying annuity yet.
- You are already living abroad or have plans to permanently reside there in the next 6 months.
Pensioners should do due diligence in checking the legitimacy of QROPS of the company that’ll be receiving your funds. Also, not all transfers are free from UK tax. You should check with the super provider for any fees or taxes required to proceed with the transfer.
The HMRC also requires a trust deed to be drafted as part of the process. There are some QROPS specialists who can guide you in fulfilling this and other requirements of the UK and AU governments. It’s important to exactly follow all the guidelines, as some steps should be performed in the correct sequence.
For pension transfers which happened between April 2015 and July 2015 when the new policies were released, the HMRC announced that they will not be imposing the 55% penalty tax on the affected funds.
Effective since last April 2015, all unfunded civil pension programs like NHS, Armed Forces, Teacher, Police, and Firefighter Pensions are not eligible for QROPS. UK state pensions, especially those from national contributions, are also ineligible for transfer.
Things to remember
The responsibility for determining whether you’re transferring to a QROPS is solely on your hands. Usually, assisting agents will tell you if they’re compliant with QROPS regulations but you should always double-check every detail to avoid tax penalties.
Several discussions and careful planning should be considered if you really want to go through the whole process. A definite timeline is needed, delineating the fulfillment of requirements and completion of events which include all parties involved.