Q: Since April 2015, transfers from UK Pension Funds to Australian Superannuation funds have become difficult to complete due to reforms in the UK pension law regime. Do you still need to set up a Self-Managed Superannuation Fund (SMSF) to get around these changes?
A: The UK pension law regime was amended from 6 April 2015. This effectively closed transfers from UK pension funds into the Australia. Unless the Australian superannuation fund did not allow a payment of a pension before the member reaches age 55 (or retirement) on the grounds of ill-health as defined under UK law.
In the vast majority of cases, superannuation funds within Australia do allow withdrawals in certain circumstances (such as severe financial hardship, total and permanent disablement and compassionate grounds). This meant that the vast majority of Australian superannuation funds (including SMSF’s) did not comply from 6 April 2015.
In practical terms, the opportunity to undertake a transfer from a UK pension fund now only applies to people over 55 who:
- have a SMSF; or
- become a member of a specialised complying public offer super fund which has become available.
The SMSF and public offer Superannuation fund need to be classified as a Qualifying Recognised Overseas Pension Scheme (QROPS) and be registered on the List of Recognised Overseas Pension Schemes (which is available on the Her Majesty’s Revenue and Customs (HMRC) website – click here).
Some specific considerations you also need to consider include:
- The amount of the UK pension transfer will count against your non-concessional cap. This depends on the timing as follows:
- Current rules / pre 30 June 2017: The Government has confirmed non-concessional contributions will continue to be subject to a yearly cap of $180,000 for members 65 or over, but under 75. A bring forward rule applies to members under age 65 for the amount of $540,000 over a three-year period.:
- New rules / post 1 July 2017: The 1 July 2017 Super changes mean:
- A yearly cap of $100,000 per annum for members 65 or over but under 75. A bring forward rule applies to members under age 65 for the amount of $300,000 over a three-year period.
- A lifetime contribution limit of $1.6 million will also apply. If your total super balance is over $1.6 million you won’t be able to make any further non-concessional contributions to super from 1 July 2017. Any super monies you have in your retirement income account is included towards this threshold.
- Prescribed reporting and compliance requirements to the HMRC as part of the QROPS requirements . This obligation continues until 10 years has lapsed from the date of the transfer of UK sourced monies into the SMSF.
So what next?
A SMSF can give you great flexibility and control in managing your superannuation, however, a simpler solution using the specialised retail superannuation fund might be preferable based on your needs. Seeking an advice is the best way forward and time is running out to take advantage of the higher non-concessional contributions cap until 30 June 2017.