How To Transfer A UK Pension To Your Australian Super Fund

Transferring UK pension money to your Australian super fund can be tricky, especially in the wake of several legislation changes in both countries. Here’s our guide on how to do it.

If you lived and worked in the UK for any period of time, you will likely have accrued savings in a UK pension. And if you’ve moved to Australia – either for the first time or as a returning resident – you may (understandably) not want to see that money go to waste. You may be able to have that money transferred to your super fund, but it’s not the most straightforward process.

Am I eligible to transfer my UK pension to my super?

According to the Australian Taxation Office (ATO), you’ll generally need to take into account both the Australian and UK rules for any transfer. The ATO says there are certain conditions that must be met before your Australian super fund can accept your UK pension funds:

  • You must be under 75 years old at the time.
  • You must meet the Australian ‘work test’ if you are aged between 65 and 74. This requires you to work at least 40 hours within 30 consecutive days in a financial year.
  • You must provide your Australian super fund with your tax file number.
  • If you are 65 years of age or older, the maximum UK pension balance you can transfer is $100,000, based on the non-concessional contributions cap for the 2020-21 financial year.
  • If you are 64 years of age or less, the maximum UK pension balance you can transfer is $300,000 (three times the non-concessional contributions cap, based on figures for the 2020-21 financial year).

If you transfer more than this, the ATO says your Australian super fund must return the excess amount to your foreign fund within 30 days.

You may also want to consider that, as outlined on the UK Government website, ‘accessing benefits (directly or indirectly) before the age of 55 will result in a liability to UK tax charges in all but the most exceptional circumstances’.

If you choose to leave your pension in the UK, in the time remaining until you turn 55 it may be prudent to actively manage your UK pension, including making sure you’re not paying too much in fees.

Can my super fund receive a UK pension transfer?

Changes to the UK pension laws made in 2015 rendered a significant number of Australian super funds unable to receive UK pension amounts. This was because UK pension laws now require that a super fund unconditionally guarantee an absolute minimum access age of 55, with limited exceptions, such as in certain cases of ill health. Australian funds which didn’t provide this guarantee were barred from accepting UK pension transfers.

As detailed by the ATO, many Australian funds, including some of the biggest retail and industry funds, also allow members to have early access on other grounds, such as financial hardship, in line with local superannuation laws. As a result, many of these funds are no longer eligible to receive UK pension transfers.

In order to be able to accept a UK pension transfer, the super fund in question needs to be registered in the UK as a Qualifying Recognised Overseas Pension Scheme (QROPS) – the registration of QROPS is managed by the UK pension regulator, Her Majesty’s Revenue and Customs (HMRC). If you’re looking to transfer your UK pension to your super fund, you should check with your fund to find out if it’s registered as a QROPS or not.

My fund isn’t a QROPS – what are my options?

If your fund is not permitted to receive UK pensions, ATO information suggests you have three main options:

  • Make use of an SMSF
  • Sign up with the Australian Expatriate Superannuation Fund (AESF)
  • Wait until you’re 55 and then have your pension money transferred to an Australian or British bank account from which you can access it

Let’s look at these three options in more detail.

Using an SMSF

Because the rules of an SMSF are set by the trustee(s) – who are also members of the fund – they are relatively flexible, although they must still comply with Australian superannuation and tax laws. It can be a simple matter to set an SMSF up for yourself and have it registered as a QROPS to transfer your UK pension to.

However, unless the amount of money you’re looking to transfer is significant, setting up an SMSF purely for the purposes of transferring your pension across may not be cost-effective. The administrative costs of setting an SMSF up, combined with any specialist advisory services you may require, can stack up quickly.

If you decide that setting up an SMSF will be a cost-effective way of recouping your UK pension, you will need to:

  • Set up your SMSF, making sure that the wording of the trust deed is compliant with UK pension regulations and that the SMSF is correctly set up under Australian law.
  • Lodge a request for your SMSF to be registered as a QROPS with HMRC – this can be done online, and in order to do so you will need to provide the details of your SMSF along with its trust deed.
  • Wait for between four and eight weeks for your request to be processed.
  • Once/if your SMSF is registered as a QROPS, obtain, complete, and submit the required paperwork to release your UK pension and have it transferred to your SMSF.

Once you’ve received your pension funds, you can either carry on using the SMSF, or roll your pension money into your regular super fund and shut down the SMSF in order to avoid dealing with its ongoing administrative requirements.

Source: QROPS Specialists 

Signing up with the Australian Expatriate Superannuation Fund (AESF)

The AESF is a fund tailor-made for those looking to have their UK pension transferred to Australia – it had more than 100 members as of December 2017, and will manage the entire pension transferal process for you. However, it does charge fees which are not insignificant, including initial set-up fees, transfer fees, and investment management/administration fees. Check the AESF’s PDS for exact figures.

Transferring your pension money into a bank account

Once you reach 55 (Britain’s current preservation age), you can simply have the money paid out into an Australian or British bank account. However, both options might have tax implications:

  • If you choose to have your whole pension paid out into a British bank account, the UK government’s Pension Wise advises that while the first 25% will likely be tax-free, the remainder will be taxed at your regular marginal tax rate by adding it to the rest of your income earned in Britain.
  • If you choose to have your whole pension paid out into an Australian bank account (which only some pension providers will do), the UK government warns you may be subject to fees or other financial penalty.

Will my transfer be taxed in Australia?

The ATO advises that you may have to pay income tax on the applicable fund earnings component of the transfer (the earnings on your UK fund that have accrued since you became a resident of Australia).

I have been an Australian resident for no more than six months

The ATO explains that if you transfer your pension within six months of becoming an Australian resident, it should be tax-free.

I stopped being employed overseas less than six months ago

The ATO also notes that your transfer should be tax-free if it is made within six months of your employment in the UK terminating.

It has been more than six months since I became an Australian resident and/or since my foreign employment was terminated

If you do not meet the above criteria, received the lump sum more than six months after gaining Australian residency or ceasing employment in the UK, and were an Australian resident when you received the payment, there may be tax implications.

You will need to add some or all of the payment to your assessable income for the financial year it was paid to you, and the assessable portion of the payment should be treated as normal income for taxation purposes according to the ATO. However, if you instead choose to transfer the whole of your UK pension fund directly to a complying Australian super fund, the ATO advises that it will be taxed as assessable income of the superannuation fund rather than as your personal income. The ATO notes that if you choose to have your sum assessed as part of your complying super fund’s assessable income, it will generally be taxed at 15%, which may be less than your marginal tax rate, depending on your income.

If you’re now earning money in Australia, you may want to compare super funds to help ensure you’re with a great-value provider suited to your needs.

If you’re comparing Superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.

Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group you selected.

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