UK pension to Australia

When moving overseas there are many different areas to consider and many different actions to take to ensure your move goes as smoothly as possible. However, one area which many people seem to neglect in the short-term is their pension and their future income. So what exactly are the rules and regulations regarding the transfer of UK pensions to Australia?

There are many different areas to consider when looking to move a UK pension to Australia, which include:-

Which pensions can be transferred to Australia?

In theory and in practice you will likely have the option to transfer any company pension scheme and any private pension scheme to Australia although you cannot transfer your entitlement to a state pension. There are various rules and regulations regarding the treatment of pension funds transferred from the UK to Australia which you need to be fully aware of it on to ensure you safeguard your future income and continue to operate a pension scheme which is as tax efficient as possible.

Is a pension fund transfer always in your best interest?

One area which many people seem to get confused by is the tax treatment of both pension investments, before payments begin, and pension income once you start to draw down from the pension scheme. It is paramount that you take professional advice regarding your pension arrangements because there are a number of tax hurdles which you need to overcome to protect your assets for the future. A transfer of your pension fund arrangements may NOT always be in your long term best interest.

When should you look to move your UK pension to Australia?

Once you have moved to Australia, and have no intention of moving back to the UK, you will normally have six months to arrange the transfer of your pensions if this is the route you wish to take. If you take longer than six months to put in place any transfer you may be hit with a tax charge on any change in the value of your pension assets from the end of the six-month period to the time when the transfer goes through.

In simple terms, you should start to make plans regarding the transfer of pension schemes sooner rather than later and, if possible, prior to your landing in Australia.

Keep your pension company up-to-date with your plans!

While any pension company will obviously look to retain as much business as possible, the fact is that more and more people are moving overseas and more and more people are looking to move their pensions with them. It is highly likely that your pension provider will have transacted a number of overseas transfers, both to the UK and from the UK, in the past. It is vital that you keep your pension company up-to-date with your plans and take as much advice as possible to ensure an efficient and as smooth a transfer as possible.

Ensure your paperwork is up to date

The vast majority of people in the UK who have their own pension schemes are likely to have some kind of financial folder which they look at every few years to see exactly what their pensions are worth and how their investments are doing. You need to maintain all contact details for pension schemes and pension advisers, plan numbers, etc., etc. so that you know who exactly who to talk to and what information they require. Any delay in the transfer of your pension arrangements, should this be in your best interest, could result in tax charges further down the line as we suggested above.

Taking professional advice from relevant parties

As we touched on above, while you need to ensure that your UK pension fund provider is aware of your situation and your plans you also need to take professional advice from an Australian counterpart. In many cases the advice from the Australian counterpart may be free or heavily discounted due to the fact they will want to attract your business. The larger the pension scheme the more attractive you will be to a pension company in Australia. It is vital that you get advice from “both sides of the fence”.

Is your pension fund too large to transfer?

There are various tax laws in Australia regarding pension fund transfers which can reduce the attractions of transferring large pension funds to the country. This is another reason why you need to take professional financial advice from an Australian pension expert as they could literally save you thousands and thousands of pounds by giving you the correct advice. Trying to cut corners with regards to costs and charges could well prove to be very counterproductive in the long run!

Remember your pension scheme is only a part of your personal finances!

As with any investment, or set of investments, you need to look at the wider picture rather than concentrate on one specific area of your financial affairs. While your pension arrangements are likely to be a large chunk of your financial wealth there will also likely be other investments to take into consideration. Again, this is a situation where professional financial advice is paramount and can literally be worth its weight in gold.

As you will see above, we have covered a number of the general questions which people will ask in relation to a pension fund transfers from the UK to Australia but there are other more specific issues to consider which we have detailed below.

Requirements to transfer a pension scheme from the UK to Australia

There’s no doubt that recent changes in the pension arrangements between the UK and Australia have made it easier to transfer pension schemes between the two countries. However, there are still a number of requirements which you need to cover before you can physically transfer your funds. These include:-

Permanent departure from the UK and no intention of returning to work or to retire

The payment of your pension arrangements must be from an approved UK scheme to an approved Australian superannuation fund

Loss of service period

One of the issues which many people will need to consider when moving from the UK to Australia will relate to final salary pension schemes where the employee’s entitlement will depend upon their period of employment and their salary. There will be some cases where the potential loss of guaranteed pension payments in the future might mean a transfer to Australia is not in the best interests of the underlying customer.

For those with money purchase schemes, where literally funds on retirement are used to acquire an annuity or payout an agreed rate of pension payments, the period of employment may not be such an issue. However, again professional advice should be taken at all times.

Leaving your pension arrangements in the UK

There will be many people who for a variety of reasons, whether uncertainty regarding the length of their stay in Australia or even laziness, may well maintain their pension fund arrangements in the UK even though they live in Australia. While for many people this may not be a big issue upon upheaval to their new homeland they may well pay the price at a later date.

In simple terms, pension fund income from the UK is likely to be treated as ordinary income in Australia which could incur tax rates of up to 46.5% when you include the Medicare levy. When you compare this against the tax breaks offered to Australian superannuation fund members there is a lot to consider and potentially some significant amounts of money at risk.

Moving your UK pension to Australia at a later date

When looking to move overseas it is likely your mind will be filled with thoughts of employment, house hunting, where to live, etc. and very often a pension fund arrangements seem fairly irrelevant in these circumstances. As a consequence, we have seen more and more UK expats decide at a later date to transfer their UK pension funds over to Australia after they have settled and they are happy in their new homeland. However, this could prove to be a very expensive decision!

As we mentioned above, there is a six month period during which the Australian authorities allow you to transfer your UK pension fund arrangements to Australia. The clock on this period begins ticking as soon as you land in Australia and have Australian residency for tax purposes. After the six-month period, if you decide to transfer your pension funds to Australia, the authorities will take a value at the end of the six-month period and a current value and you will incur a tax charge on the difference. If you have a large pension fund or you leave the transfer of your pension arrangements for some years the potential tax charge could run into thousands of dollars.

Currency risk with your pension payments

One issue which is often overlooked is the exchange rate and the potential fluctuations over the months and years. A quick look back at the Australian dollar and UK sterling exchange rates show there has been significant movement over the last few years which could impact upon the value of your payments in Australia. In simple terms, if you draw down your pension in sterling and convert it into Australian dollars there will always be a currency risk. Sometimes you may win, but sometimes you may lose.

Retaining control of your pension fund investments

While the Internet has obviously had a major impact upon the worldwide financial markets you need to ask yourself whether retaining your pension fund assets in the UK while living in Australia, or vice versa, is sensible. If you consider yourself today, are you fully aware of what is going on in the Australian investment markets? If not, then how would you expect to maintain touch with the UK markets if you lived in Australia?

These are just simple facts of life which need to be considered along with a whole host of other issues when you are looking to move overseas.

The UK state pension

There have been changes to the way in which the UK state pension and the Australian state pension can be claimed by those living in Australia, with the Australian government terminating the social security agreement between the UK and Australia in February 2001. This basically allowed for residency periods in Australia and the UK to count towards qualification for the Australian state pension, or indeed the UK state pension.

However, thankfully, there is still a double taxation agreement in place between the UK and Australia which effectively means you will not pay tax in the UK and Australia on your UK state pension income. Normally, depending upon your tax and residency status in Australia, you will pay tax in Australia on your pension income.

Conclusion

Moving a UK pension to Australia would appear to be very straightforward on the surface but underneath there are many issues to consider which could potentially cost you thousands upon thousands of pounds. There are taxes to consider, currency risks to consider as well as a whole host of other issues which you need to take into account with regards to your specific situation. The truth is that you should not even contemplated transferring any pension fund benefits from the UK to Australia without taking professional advice. Those who do so will do so at their own risk.

Very often when you are moving to a new country your pension fund arrangements will be well down the list of things to do. However, in hindsight you may well look back on the period during which you moved and wish that perhaps you had considered your long-term financial situation a little more. If you are moving to Australia and are still relatively young then your pension and retirement days may see many many years away. The truth is that what you do, or what you don’t do, today could have a major impact on your future financial position.

The simple solution with regards to pension fund transfers is to take advice from the professionals and take this advice as soon as possible.

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