Many people ask the question, why would I transfer my UK Pension to Australia and not just leave it in place in the UK? Or just withdraw my funds directly from the UK from age 55, whilst resident in Australia?
Well, there are a number of reasons for this, and we will cover 5 reasons why you may want to consider transferring your UK Pension to Australia in this article.
- Tax Planning
- Flexibility in Retirement
- Exchange Rate
- Managing your Finances in your country of residence
- Tax free window to transfer your funds
1. Tax Planning
This is a very important matter you need to consider because if you begin withdrawing funds from the UK but are resident in Australia, you may end up paying more tax, depending on your level of income.
Firstly, if you wanted to withdraw funds directly from the UK, you would need to apply to Her Majesty’s Revenue and Customs (HMRC) for a ‘Double Taxation Agreement’ (DTA) so you are not taxed twice in the UK and Australia on the same income you are receiving. HMRC may not grant this however. For more information in double taxation agreements, see our guide.
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If this is granted, then the growth achieved within your UK pension would be added to your taxable income you are receiving in Australia and taxed at your marginal rate, which could be more expensive from a tax perspective than if you transferred your UK Pension to an Australian Super Fund and paid tax under Superannuation rules.
If you transferred to our Australian Expatriate Superannuation Fund the tax you would pay on the applicable fund earnings would be at a fixed concessional rate of 15%. If you did not transfer, and decided to withdraw directly from the UK, then in order for the tax rate payable to be less than 15%, your total taxable earnings for the year would need to be below $18,200. Read more about how superannuation is taxed in Australia.
So depending on your circumstances, there is a good chance that there may be tax advantages to you by having your funds taxed under Australian Superannuation tax rules rather than withdrawing money directly from the UK. However, this is a matter you should discuss with your tax adviser to understand the more favorable option to you.
2. Flexibility in Retirement
Our Australian Expatriate Superannuation Fund allows you to flexibly withdraw funds provided that you meet a ‘condition of release’ at your preservation age. You can withdraw your money as and when you require it giving you full control over your finances.
If your UK pension funds are held in a ‘Defined Benefit’ arrangement or an old style personal or company pension plan, then you may not have this same flexibility and control over your funds once you reach your retirement age. Your retirement options are generally fixed and restricted with these types of UK pensions so this is something that you need to consider.
You should also consider that if you seek to withdraw funds directly from the UK and do not have a UK bank account, as many providers may not permit a payment of funds to an overseas account. If you do have a UK bank account, then you need to consider that you would be subject to exchange rate risk and potential charges every time you transfer money from your UK account overseas.
3. Exchange Rates
Your UK pension is most likely to be held in Great British Pounds (GBP) which restricts you to one currency. Whilst currency and exchange rates constantly fluctuate, the Australian Expatriate Superannuation Fund, has a diverse range of currency options, including the Great British Pound (GBP), Australian Dollar (AUD) and the US dollar (USD). This enables you to transfer and exchange when the time is right for you, giving you control of your exchange rate decisions when required.
Many schemes do not offer multi-currency investments which restricts you to obtaining the best rates when investing your funds. For example, in April 2020, you could get $2 (Australian dollars) for every £1 you invested. This was the highest difference between both currencies we had seen since May 2016. People who transferred their UK pension to Australia during this period benefited from the favourable exchange rates.
A major concern for many people is the outcome of BREXIT and how it will affect the value of the Great British Pound (GBP). With Brexit just around the corner and the potential for the value of the pound to plummet, you may want to consider moving out of GBP and into AUD.
4. Managing your Finances in your country of residence
Managing your retirement savings under one roof is always going to make life easier from an administrative perspective, particularly for those who have multiple Pensions or Superannuation schemes. You would not need to deal with multiple providers and different charging structures, and you would not have the potential headache of managing tax in two different jurisdictions.
In addition, most providers in the UK will send annual statements by post only and this can be an issue if you are living overseas, so managing your plan may result in needing to make phone calls back to the UK to request information. This is a problem mainly for holders of older style UK Pension Plans that do not have a modern online system to view their account.
Our Australian Expatriate Superannuation Fund (AESF) allows you to consolidate all of your UK Pensions into one manageable plan with us. If you have any existing Superannuation funds then you can also consolidate these with the AESF so that you have all of your retirement funds under one roof.
5. Tax free window to transfer your funds
Lastly, if you transfer your UK Pension to Australia within 6 months of becoming an Australian resident, you would not be subject to tax on the investment growth achieved, during that period.
Lets take an example:
You became an Australian resident on 1 January 2020 and the value of your UK pension, at that date, was $200,000. You transferred your UK Pension to Australia on 1 May 2020, at which point it was valued at $220,000. In this example, the pension had grown in value by $20,000 and this is the amount that would normally be subject to a tax charge. However, as you had transferred the plan within 6 months of becoming an Australian resident, no tax would be payable on the growth, during this period, which will save you money.
So, as you can see there are important factors that you should consider when it comes to your UK Pension funds. The examples above may be of benefit to you depending on your current circumstances, however we would always recommend that you seek professional financial advice to understand the best options to you, particularly when transferring a pension.
If you have a UK pension that you are considering transferring to Australia, contact a member of our team today for some FREE support and guidance and let us help you.
This article does not contain personal or financial advice. It is provided for general information only and does not take into account your personal objectives, financial situation or needs. IVCM is not authorized to provide you with any personal or financial advice.
If you require financial any advice then you must make sure that you obtain advice from a suitably qualified financial adviser.