Q In 2001 I migrated to Australia form the UK. I previously worked as a Police Officer in the UK and I have a Public Service Defined Benefit pension. I am turning 61 this year and I need to make a decision whether to move the Pension to Australia or receive a Pension or Lump Sum in the UK. What are the tax consequences of moving my funds to Australia?
A From 6 April 2015, there are important changes to the rules that apply to those considering transferring UK Public Service Defined Benefit Pensions.
To be eligible to move your Pension funds to Australia, you are required to move the funds to a Qualified Recognised Overseas Pension Scheme (QROPS). These are superannuation or pension funds recognized under UK law as being eligible to receive transfers from UK Pension Schemes.
Arguably most Australian Superannuation funds are eligible to accept QROPS transfers. Please check with your existing fund or prospective fund. Note Self Managed Superannuation funds cannot accept UK Pension transfers.
As you have lived in Australia for more than 6 months, you will pay tax on the growth of the fund. 15% tax is payable on the growth in the withdrawal value of your fund from the time you took residency in Australia and now. Had the UK Pension fund been transferred within 6 months of you taking residency, the funds would have been exempt from this tax.
There are good reasons to transfer UK Pension Funds into Australia, particularly if you are looking to retire in Australia. Australian Superannuation fund earnings are taxed at 15% within the funds when in accumulation mode. When you transfer the funds to an Allocated Pension, the earning within the fund are tax free. For those over 60, the income received as a pension is also tax free.
On death, Australian superannuation and pension benefits are tax free to eligible beneficiaries. If pension funds remain held in the UK, tax of up to 55% may be payable. For UK Defined Benefit Pensions, your spouse would receive a reduced Pension benefit on your death.
The UK Government recently announced major changes to how retirees may receive their Pensions benefits. As part of the reforms, from 6 April 2015, UK expats who have a Public Sector Pension Scheme will be ineligible to transfer their funds to a QROPS fund. Defined benefit Pensions already paying a Pension benefit remain ineligible for transfer.
If you plan to transfer your funds to Australia, there are important steps you need to take now. You need to urgently apply for a Cash Equivalent Transfer Value (CETV) for your UK Pension fund. Once the CETV is received, you can accept or decline the offer to commute. The UK Fund will request declarations from the Australian Superannuation fund in relation to the fund qualifying as a QROPS fund. It is important that this is done now as it can take a few months to receive the CETV and transfer the funds.
The consequences of missing the 6 April deadline are that your funds will be locked into the UK Pensions system and you will have to determine how you plan to transfer Pension payments to Australia.
At this stage, Defined contribution or Private UK Pension funds will continue to be eligible to be transferred to QROPS after 6 April.
There is a huge amount of complexity around UK Pensions and QROPS transfers. The above serves to highlight traps that many considering transferring UK Pension may not have been aware of but why they need to act now.
For further assistance, contact an Australian domiciled Financial Planner who has experience with UK Pension Transfers.