So, what happens to your retirement fund when you move to Australia? And how can you transfer it from the UK to the new country?
In this article, we take a closer look at the process of transferring your UK pension to the Land Down Under and its various implications.
Yes. You can transfer your UK pension to Australia. But not all UK pensions can be transferred to Australia. You cannot transfer your UK State or Civil Service Pension to Australia.
Here are the four major types of pensions that you can transfer to Australia:
As the name suggests, this is the pension you have personally set aside, which differs from your work pension.
The contributions here vary, and you were the one who selected the structure of payments. UK personal and work pensions allow you to receive tax relief on all of your contributions, with your pension provider investing your money.
This is the most common pension for anyone who has worked in the UK because employers have been mandated to enrol their employees in this pension scheme since 2012.
This workplace pension is variable, though it can be a defined benefit amounting to your final salary or based on a contribution arrangement.
This type of pension puts you more in control as you will be the sole decision-maker regarding your investment and, thus, your retirement savings. It has a defined contribution structure that you decide early on.
Many planning to move to Australia opt to transfer all their pensions to a SIPP before relocating because it allows them to have their hard-earned pension funds in one place, and they can easily access Australian investments.
An organisation’s company directors or senior executives usually establish this flexible pension. It typically benefits senior staff and can only have a small number of employees, usually less than 12. Everyone in that elite circle will receive equal tax relief, and the trustees will make all the investment decisions.
Transferring your UK pension to Australia is more complex than a simple bank-to-bank transfer.
The most practical and convenient way to start this process is to transfer your pension to an Australian superannuation fund, more commonly referred to as the Australian super fund or just “supers.” This is the closest equivalent of the UK pension because all employers in Australia are required to contribute to their employees’ pensions. It’s a tax-efficient savings program intended for retirement.
There are also various types of supers, such as the self-managed super fund or SMSF and the retail superannuation funds.
The self-managed super puts you in control of everything, similar to the UK’s SIPP. You are to manage, administer and invest all fund-related decisions for your super. Alternatively, you can onboard a financial expert to guide you through it.
Retail super funds, also called industry super funds, involve a provider who will make all the investments on your behalf.
You can move your UK pension to Australia through a Qualifying Recognized Overseas Pension Scheme (QROPS). This overseas pension scheme has specific requirements set by the UK’s His Majesty’s Revenue and Customs (HMRC).
Once you qualify for this, you can transfer your UK pension to Australia’s financial jurisdiction. For this, you must apply and show evidence of your identity, including your addresses in the UK and Australia.
Here are the steps you can follow:
#1. Contact your pension provider in the UK and learn the rules involved when moving your pension out of the UK and into an overseas scheme, specifically Australia.
#2. Review the HMRC list to look for a QROPS Australian super that accepts UK pension transfers to Australia.
#3. Learn about all the rules and guidelines concerning the financial limits, time frames, charges, taxes, and other fees involved when transferring your pension.#4. Once you know the move, you can complete the paperwork allowing the UK to move your pension to Australia.
Although the process is doable, transferring your UK pension to Australia also has several drawbacks that may make you hesitant. Awareness of certain disadvantages can help you decide if this is a move you want to push for.
Take a look at some of the potential drawbacks of transferring a UK pension to Australia:
With the move of transferring your UK pension to Australia, there are tax obligations that you need to meet. And it can work to your advantage because, in the UK, you can enjoy tax relief. For example, if you decide to take out your pension, 25% of the total amount will be tax-free, and the rest will be subjected to income tax.
In Australia, however, your contributions to your super are taxed as they are created or funded, but withdrawals are tax-free. So, by transferring your pension to Australia, you can get more of your contributions because you pay tax on just your contributions and nothing more upon withdrawal.
You need to have a minimum of £20,000 in pension savings before transferring your money to any Australian QROPS. In terms of the maximum amount, there is no limit on how much you can move, but there is a Lifetime Allowance (LTA), which dictates how much you can tax-efficiently save in your UK pensions. As of the 2022-2023 tax year, this is set to £1,073,100.
If you move an amount larger than what’s established by the LTA, you may be charged 25% tax obligations, especially if you are below 75.
Transferring your UK pension to Australia is a fairly straightforward process and puts you at an advantage when withdrawing your funds and having your pension in just one place.
But if you are considering moving back to the UK or have other plans about where you’ll stay, you may need to reassess moving your pension to Australia first. If you’re unsure about the risks involved, working with a financial advisor to ensure a seamless transfer is best.