STOP PRESS: UK Pension Transfers to Australia Currently Suspended
In early April, 2015 the UK enacted a change to its pension regulations effectively prohibiting any access to a pension prior to age 55 unless for reasons of "serious ill health". They then contacted all QROPS funds worldwide and sought their confirmation that they complied with this requirement. Australian superannuation funds do provide access to pension funds prior to age 55 in a limited number of situations apart from ill health (severe financial hardship, DASP payments etc.,) and would need to change their Trust deeds to accommodate this change. There have been substantial discussions as a result and a number of funds have made the change, but a number of larger public funds have declined to do so because of the impact on their wider membership base. Nevertheless, when HMRC published it's list of QROPS funds on July 1, 2015 only one Australian fund was listed - the Local Government Superannuation Scheme (LGSS) in Queensland - and probably because the amendments does not apply to overseas public service funds.
Since we believe that a number of funds signified compliance there is considerable uncertainty over HMRC's approach and no transfers can or should proceed until this is resolved. One possibility is that HMRC believes that trust fund amendments do not make the fund compliant for QROPS purposes. For example, they make be taking a legal view that Australians have a "statutory" right to access in situation for other than ill health and these are unaffected by changes to the trusts deeds. Clearly, more information is needed and meanwhile QROPS transfer to Australia have effectively been suspended and we are advising people to review the situation again, perhaps in October, when we hope there will be greater clarity.
QROPS : Pension Transfers from the UK to Australia
On April 6, 2006 a new pension transfer regime became applicable to transfers out of UK pension funds into foreign pension schemes. From that time onwards, in order to avoid very significant taxation, pension transfers out of the UK had to be made to funds certified as Qualifying Recognised Overseas Pension Schemes (QROPS).
In summary, the major changes introduced included:
- Transfers out of UK registered pension schemes being tested against a lifetime allowance (LTA) and any amounts transferred above this level would be taxed at a rate of 25%.
- Transfers below the LTA did not attract tax charges as long as the receiving overseas scheme is a QROPS.
- Transfers to an overseas scheme which was not a QROPS would be treated as unauthorised payments and attract tax charges of 40%, or higher.
Since this announcement a very large number of Australian superannuation funds have applied for and received QROPS status, with HMRC maintaining a list of qualifying funds on its website. Self Managed Superannuation Funds (SMSF) in Australia can also receive QROPS certification and this substantially increases a transferee's range of choice considerably. Apart from registration, the QROPS needs to meet very specific reporting requirements for a period of 10 years (originally 5 years, but extended in 2012) after the date of the last transfer from the UK.
Please note that these changes do not require expatriates to transfer your pension; you may continue to leave it in the UK and eventually receive a sterling pension. Whether this is the correct approach from a tax and personal perspective should be subject to specific professional advice.
The area of most difficulty is in the area of “final salary” or “defined benefit” schemes - where pensions are based on the member’s salary and length of service. Transfer values out of these funds are essentially the present day cash value of deferred retirement income promises made by employers. They depend very much on assumptions made regarding investment returns by the fund. This, and the fact that pensions are usually indexed in some fashion, has to be balanced out against the benefits of transfer into an Australian superannuation, and most particularly the tax benefits. It is recommended that you obtain professional advice on these matters and it is now a legal requirement that professional advice is obtained in the UK before a transfer out of a defined benefit scheme (below a certian value) is available..
Should you wish to make an inquiry through Exfin about the transfer of a pension from the UK or elsewhere to Australia, or are seeking professional advice in a related matter, please click on the link at the bottom of this page.