Transferring a UK pension to Australia

Published on: December 10th, 2021

Living and working in the UK is a well-worn trail for Australians, and many UK residents choose to move to our sunny shores for the Australian lifestyle. Access to your UK pension fund in Australia is undoubtedly an important part of your retirement plans, but transferring funds isn’t always straightforward. Here’s what you need to know.

Differing rules affect whether and when you can transfer your pension

Under Australian Superannuation Law, the release of your superannuation before the age of 55 is allowed in a very limited set of circumstances, typically financial hardship. This conflicts with UK pension rules, and therefore, HM Revenue and Customs (HMRC) only allows transfer of UK pension funds to an Australian superannuation fund once the member is over 55.

In addition, it’s important to note that state pensions cannot be transferred to Australia at any time. Only defined benefit and defined contribution schemes are eligible.

The Australian fund you choose matters

The HMRC has strict requirements on what type of funds can receive your UK pension. Your Australian fund must be registered as a Qualifying Recognised Overseas Pension Scheme (QROPS) fund to be eligible for the rollover.

To be recognised as a QROPS fund, the Australian fund must restrict membership to those aged 55 or over, meaning few public offer funds in Australia comply. At the time of writing, and to the best of my knowledge, only one retail fund is recognised under the scheme.

One option expats can consider is commencing a self-managed super fund (SMSF), but the governing deed must be tailored to meet UK QROPS requirements and be registered with the HMRC as a QROPS. In addition, all members of the SMSF must be 55 or over. While this option can be effective, it is worth getting advice to avoid costly mistakes.

Understanding Australian tax implications is critical

There can be a tax benefit to transferring your UK pension within six months of becoming an Australian tax resident or ceasing overseas employment. However, after this time, transfers will likely carry tax implications.

Typically, fund earnings that have accrued since you returned to Australia will be taxable.  You can elect to have earnings taxed at your marginal tax rate or super earnings tax rates (15%), but you will have to transfer the entire fund for this portion of your rollover to be deemed fund earnings.

Benefits accrued prior to arriving in Australia are typically treated as non-concessional super contributions, which are tax-free when you remain within the contributions cap of $110K per annum. You may be able to increase this to $330K by bringing forward the following two years’ contribution cap. If you exceed these non-concessional contribution caps, excess contributions taxes may apply.

In addition, the Australian superannuation system now has a “transfer balance cap”, currently set at AUD $1.7 million. If you make a non-concessional contribution that takes your total superannuation funds in Australia over this cap, taxes may apply to the portion of your transfer that exceeds it.

The good news is that there are strategies available to navigate contribution caps and ensure that you can transfer the full balance of your UK pension at the fund earnings tax rate of 15%. To make best use of these strategies, it’s advisable to work with an Australian financial adviser who will collaborate with your UK Adviser and accountants.

There are ongoing requirements and considerations

Managing your UK pension in Australia doesn’t stop after the initial transfer. Once you have transferred your UK pensions to a country outside the UK, you may need to pay 25% tax on the transfer value if you move from that country within five years. Therefore, before moving your funds to Australia, you should be sure you will remain here long term.

In addition, where the pension was rolled over after 6 April 2017, there are usually requirements for any withdrawals, rollovers of other events to be reported to the HMRC for at least ten years. Where a member commenced their QROPS after this date, lump-sum withdrawals exceeding 25% of the fund or rollover to a non-QROPS fund may be taxable at up to 55% in the UK. This applies if the member was a UK resident in the preceding ten years or the rollover occurs within five years of the transfer from a UK scheme.

Other things to note include:

  • You cannot use funds transferred from a UK pension to purchase residential property within a QROPS.
  • Income payments are tax-free from an Australian account-based pension using proceeds from a UK pension rollover.

Don’t go it alone

UK pension transfer is a complex area, and the wrong move can be costly. To ensure you make the right moves, you should consider working with an Australian financial adviser who will collaborate with your UK Adviser as well as accountants who understand cross-border tax issues.

If you are navigating UK pension transfer, get in touch with the specialist expat advisers at Apt Wealth Partners. We can coordinate the entire process, working with your professional adviser or connecting you with our professional partners to ensure it is seamless and leads to the best possible outcomes.

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.