How to manage your foreign pension on returning to Australia

Published on: October 7th, 2021

With many Australian expats deciding to return home throughout the pandemic, what to do with foreign pensions is becoming a hot topic. And it’s one that can be challenging to navigate, as it’s a highly complex area. Here, we look at what to do with foreign pensions once you’ve returned to our shores.

#1 Determine whether your foreign pension is a ‘foreign super fund’

The first step is to understand whether the Australian Taxation Office (ATO) considers your foreign pension a ‘foreign super fund’ as this may influence your next move. Not all foreign pensions are deemed as super funds. Typically, if you can withdraw benefits before retirement, it won’t meet the ATO’s definition of a super fund.

Here is how the ATO typically treats pension funds from some popular Australian expat destinations:

  • UK Pensions are typically seen as foreign super funds by the ATO. However, UK laws restrict transfers from UK pensions to Australian super funds to those aged over 55. In addition, the super fund accepting the transfer needs to be Qualified Recognised Overseas Pension Scheme (QROPS) compliant. At the time of writing, I believe only one Australian public-offer fund meets this requirement. One alternative is to commence a self managed super fund (SMSF) tailored to meet UK QROPS legislation.
  • US Retirement Accounts are typically not seen as foreign super funds by the ATO, as 401 (k)plans and the IRA allow early withdrawals. However, any withdrawal or income payment from US retirement accounts while you are an Australian taxpayer will typically be assessable on your Australian return.
  • KiwiSaver – Since 1 July 2013, individuals have been able to transfer retirement savings between Australia and New Zealand after emigrating from one country to the other. There are a few considerations, however. You will need to find a public-offer super fund that accepts KiwiSaver rollovers, and many do not. Nor can you transfer your KiwiSaver to an SMSF. In addition, you will need to meet NZ retirement age requirements before accessing the KiwiSaver component, even after you have made the transfer to an Australian super fund. This rule applies even if you have met an Australian retirement condition of release before age 65.

If you are unsure whether your foreign pension qualifies as a foreign super fund, your accountant can apply for a tax ruling from the ATO.

#2 Consider tax implications and timing of transfers

If your foreign pension qualifies as a ‘foreign super fund’, timing your transfer may be beneficial. It may be a tax-free transfer if you transfer it within six months of becoming an Australian tax resident again or ceasing overseas employment.

Transfers after this six month point may carry tax implications. Typically, fund earnings accrued since your return to Australia will be taxable. You can elect to tax fund earnings at your personal marginal tax rate or super earnings tax rate (15%).

#3 Understand how benefits are treated on both sides

Benefits accrued prior to your return to Australia are typically treated as non-concessional super contributions. This treatment means excess taxes may apply where you have exceeded non-concessional contribution caps.

You will also need to consider your requirements and tax implications overseas. These can vary and should be checked with your foreign fund as soon as possible.

#4 Get advice from experts

Navigating finances as an expat can be complex, but it doesn’t have to be. Working with accountants and financial planners who understand both jurisdictions will give you the best opportunity to maximise your finances and stay on track with your goals when moving home.

If you are considering making financial moves as a current or returned expat, get in touch with our specialist Expat Financial Planners at Apt Wealth Partners to make sure you’re making the right ones.

General Advice warning

The information provided in this blog does not constitute financial product advice or a recommendation to purchase a particular product. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners Pty Ltd is not a registered Tax Agent. You should consider your individual situation and seek tax advice from a registered tax agent before making any decision based on the content of this document. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.