A lot of UK residents move to Australia permanently each year and the most common question that they have for financial and legal consultants is how to transfer their UK pension to Australia. The answer to these queries is not always simple because it varies on a case to case basis.
The transfer of UK pension to Australia is a complex and technical process that can result in hefty fines and penalties if done without the help of a legal expert. This is why we have put together this brief guide to help you understand the complete process of UK pension transfer to Australia.
Pros and Cons of Pension Transfer
Transferring your UK pension to Australia can result in a number of benefits such as:
Consolidation of Funds
The decision to move to Australia without transferring your pension means tracking your pension fund in the UK and your savings fund in Australia. Why make matters more confusing when you can simply transfer all of your savings and pension to Australia and have a consolidated fund to track your retirement nest?
Keeping your pension fund in the UK while you live in Australia means that you will have to transfer your monthly pension to Australia through banking channels. This process requires converting your UK pension from Pound Sterling into Australian Dollars. Forex rate fluctuations mean that your pension transfers each month will be exposed to unnecessary volatility due to currency risk.
Send Payments offers a personalised service that can help you transfer large amounts of your pension to assets or family members in Australia.
Transferring your pension to Australia removes the currency risk and gives you a steady stream from your Australian super fund.
Pension contributions are taxed marginally in the UK and Australian super fund withdrawals are tax free (subject to preservation age). This means that if you transfer your pension to Australia, you can benefit from low contribution tax and no withdrawal tax.
There are however a few drawbacks of transferring your UK pension to Australia. Such as
High tax charges and penalties
If you do not meet the requirements of QROP, your pension fund transfer to Australia may be subject to exorbitantly high tax charges and penalties. These charges make transferring your pension fund counterproductive. So it is important to double-check that your pension fund transfer is legal and safe.
Uncertainty about future
If you are not certain about settling in Australia permanently, then transferring your pension fund may not be a very good choice.
It is very important to know the types of pension schemes that can and cannot be transferred.
You cannot transfer your pension from the UK to Australia if you are receiving pension from any of the following
- UK State pension
- Unfunded civil service pensions
You can either continue to receive your UK state or civil service pensions in your UK bank account and then remit them to Australia. Alternatively you can have your pension paid directly into an Australian bank, if the pension provider provides this facility.
Apart from these two ineligible categories, the types of UK pensions that can be transferred to Australia include
- Occupational or workplace pension scheme
- Defined benefit and contribution schemes
- Small self-administered scheme (SSAS)
Defined benefit and contribution schemes come with numerous added benefits that you may lose when transferring your pension to Australia. So make sure that you discuss this thoroughly with your financial advisor before committing to a transfer.
Conditions for Transfer
It is important to be mindful of the conditions that apply to pension transfers from the UK to Australia. Failure to comply with the conditions can result in hefty tax charges and penalties.
- The minimum size of the pension fund should be £20,000.
- The individual transferring the pension to Australia must be at least 55 years of age.
- The individual transferring the pension to Australia must be a resident of Australia to benefit from tax-free transfer. Tax rate of 25% is applicable on the transfer for non-residents.
If you are under 55 years of age, you can still transfer your pension savings but this will involve using a workaround. First you will have to invest your savings into a self-invested personal pension (SIPP) based in the UK. You can then use the SIPP to invest in Australian funds. Once you turn 55, you can then take the “legal” and preferred route to transfer pension funds to Australia through QROPS.
If you are in compliance with the above-mentioned conditions then you can simply transfer pension from UK to Australia through QROPS.
What is QROPS
QROPS stands for “Qualified Recognised Overseas Pension Scheme”. QROPS was introduced in 2016 to facilitate overseas UK residents receive their UK pension in the country of their residence. HMRC has designated QROPS as an eligible service to receive transfers from eligible UK pension schemes into recognized Australian schemes.
Australian superannuation funds that are registered as a QROP are eligible to receive your UK pension savings. QROPS is a regulated scheme to easily transfer your UK pension to Australia, as long as you understand the process and comply with the restrictions mentioned above.
Technically you can transfer your pension directly but doing so would result in a 55% tax charge with additional penalties by the HMRC. That is if your UK pension provider even agrees to transfer to an unregistered and unauthorized pension fund in Australia.
How to transfer UK pension to Australia?
Before you initiate the transfer, it is absolutely vital to understand all the relevant rules, restrictions, charges and tax rates that will apply in your particular case. Any oversight or mistake can result in high tax charges and penalties that may or may not be refundable.
Make sure to follow the steps mentioned below, to transfer your UK pension to Australia.
- Get in touch with your existing pension fund in the UK and inquire about the rules to transfer your pension out of the UK pension fund into an Australian pension fund.
- Click here to go to the list of HMRC approved QROPS.
- Choose the appropriate and relevant Australian superannuation fund, make sure they are HMRC recognized.
- Get in touch with the chosen fund in Australia and all relevant authorities to understand the applicable tax, rates, charges and limitations on your transfer.
- Once you have understood every detail, download the APSS 263 form, print it and complete it properly. Information that maybe required on this form includes
- Personal details
- National insurance number
- Residential address (Both UK and Australia)
- Details of the chosen QROPS
- Australian QROPS reference number given at the time of registration
- Employment details
6. Complete the form and submit it to the UK pension scheme administrator.
Important deadlines to remember
- All details on the APSS 263 form must be provided within 60 days of submitting the request. Failure to do so may result in a 25% tax charge
- UK pension transfer to Australia can be tax free if it is done within 6 months of moving to Australia
It is absolutely possible to transfer your UK pension to Australia in a tax-free manner through QROPS. However, the process is wrought with technical complexities. This is why we advise you to consult a financial expert to avoid any undesirable outcome.
Matt is a veteran of the moving industry, a recognized moving expert and is the founder of Mover Focus. Matt holds a Bachelor of Commerce (BCom) majoring in Finance and Marketing and Bachelor of Arts (BA) majoring in Economics and History. He also has completed the EiM (Essentials in International Moving) course from the FIDI Academy. His advice has been featured in Reader’s Digest, Yahoo Finance, MSN Money, Business News Daily and The SpareFoot Blog Go. Read more.