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UK Pension Retirement Options – For Australian Residents

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UK Pension Retirement Options – For Australian Residents

When working in the UK it is a legal requirement for your employer to contribute a minimum percentage of your salary into a pension scheme on your behalf and you must, at a minimum, match these contributions. Therefore, if you have spent time working in the UK, you will have built up a pension pot of some size.

You may be an Australian resident who has spent time working in the UK or a British Expat now living in Australia and would like to know what your options are with your UK Pension funds. In this article, we will cover the options you have with your UK Pension, whilst living in Australia.

Firstly, your options with your UK Pension funds will vary depending on whether you are under the age of 55 or over this age

In summary, if you are under the age of 55, you have these options:

  • Leave your UK Pension in place until your 55th birthday– As you cannot transfer your UK pension to Australia before the age of 55, you can only manage the investments within them until you reach that age, in order to try and achieve as much investment growth as possible. You can also contribute to your pension but you may not be entitled to tax relief on the contributions you make. If you are unsure of which investments to choose to manage your plan efficiently then you should seek professional investment advice. For more information on your retirement options, you can visit the UK Government website.

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  • Transfer to another UK pension plan – This may be a consideration if you have an old style UK pension with limited investment choice. You may wish to transfer to a UK Self Invested Personal Pension (SIPP), for example, which generally has a much wider range of investment choices than standard or old style pension plans. See more about UK SIPPs in our guide.

If you are over the age of 55, you have these options:

  • Leave your pension in the UK and begin withdrawing funds from it - This is one option to consider and in fact, many people ask us, why transfer my UK pension to Australia, when I can just withdraw the money directly from the UK? Well, there are a few reasons why and some factors you need to consider. Firstly, you should be aware of the tax implications when withdrawing funds from the UK whilst an Australian resident. If you transferred to our Australian Expatriate Superannuation Fund the tax you would pay on the applicable fund earnings (investment growth) would be at a fixed concessional rate of 15%. If you did not transfer and decided to withdraw directly from the UK, your applicable fund earnings would be added to your taxable income and charged at your marginal rate. Therefore, 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.
  • Transfer your Pension to a Self-Managed Super Fund - You can set up a Self-Managed Super Fund and arrange to transfer your UK Pension to it, provided that you have applied directly to HMRC to register your SMSF as a Qualifying Recognised Overseas Pension Scheme (QROPS). Setting up a SMSF is not a straight forward process and would be your responsibility entirely. Additionally, the process of applying to register the fund with HMRC as a QROPS is also a complex task which is your responsibility. See our article for more information on What is a QROPS. 

You would also need to administer the full transfer of your UK pension to Australia which can, at times, be a difficult process to manage. You should also note that the ongoing management of the SMSF is your responsibility, so you need to make sure that you have a firm understanding of how they work to avoid potential punishments from the regulator. For more information on SMSFs, see our guide here!

  • Transfer your Pension to our Australian Expatriate Superannuation Fund (AESF) - This option for many people we talk to is a lot more straight forward. Our AESF is a public offer Retail Superannuation Fund and is the ONLY Retail Super Fund in Australia that is registered with HMRC as a QROPS, so you would not need to go through the complex QROPS registration process with HMRC like you would with a SMSF. The set-up of the fund and the transfer of UK pension funds are all administered by us on your behalf, and we also administer the fund on an ongoing basis, unlike a SMSF. This is similar to how UK Pensions operate in the UK so it saves you the headache.

The transfer is a simple process – see our Transfer Guide here! 

When transferring a UK Pension to Australia you must be aware of the following criteria:

  • If you are not a resident in Australia, then you would be subject to an Overseas Transfer Charge of 25% of your pension fund.
  •  You can only transfer to a Super Fund that has been registered with HMRC as a QROPS.
  •  You must be aged 55 or over to transfer your UK Pension to Australia.
  • You can transfer a maximum of $330,000 AUD (plus investment growth) initially without being subject to a tax charge on the contribution. Any contributions/transfers above this limit will be subject to a tax charge on the excess.
  •  You cannot transfer your UK State Pension to Australia.

At IVCM it is our job to make the transfer process as simple and as transparent as possible for you. We have helped 100s of UK expats move their pension funds to Australia and we would like to help you too.

If you are considering transferring your UK Pension to Australia, contact us 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.

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Transferring a Defined Benefit Pension to Australia

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Defined Benefit Transfers - The Transfer Journey

In this article, we will cover the key steps you must take in order to transfer your ‘defined benefit’ pension plan to our Australian Expatriate Superannuation Fund (AESF).

You should also refer to our Pension Transfer Guide, which covers other areas of the transfer process, for example, eligibility rules, types of pensions you can transfer, the benefits etc. You can view our guide here - Transfer my UK Pension to Australia – Your Guide

This article assumes that you meet the eligibility requirements for transferring your defined benefit pension and you are ready to go.

STEP 1 – FINANCIAL ADVICE

When it comes to transferring a ‘defined benefit’ pension plan, it is a legal requirement for you to obtain Pension transfer advice from a qualified Financial Adviser. During this process, your chosen adviser will produce a Transfer Value Analysis Report (TVAS) which your existing UK scheme provider will require sight of before they permit a transfer out of funds. Without this report, a transfer will be blocked by the UK scheme.

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STEP 2 – CASH EQUIVALENT TRANSFER VALUE (CETV)

To initiate the process you must first request a cash equivalent transfer value (CETV) from your UK scheme provider. This will come in the form of a full transfer pack and you will be given a transfer out value that is guaranteed for up to 3 months. It will also detail other important information that your Financial Adviser will need to conduct a full transfer value analysis for you.

Once you have this, then you must pass it on to your adviser as soon as you can because you only have 3 months to get everything in place for the transfer. Your Financial Adviser will then conduct a full Transfer Value Analysis (TVAS) and provide you with the required report your existing scheme requires in order to transfer out of it. Be aware, that the advice given may recommend that it is not in your best interest to transfer your pension so this is something you should consider.

STEP 3 – DOCUMENTATION

Moving onto the administrative side of the transfer and assuming that you have the green light to go ahead, you need to complete and sign all of the required AESF documentation which can be found on our website :

Complete all of the above and send this, together with the UK Pension transfer documentation to our office in Sydney.

You must also provide the following ID.

  • Proof of Identification – Copy of your Passport or Driving License
  • Proof of Address – A utility bill (no longer than 3 months old)

STEP 4 – THE JOURNEY

Once you have submitted all of the above to us, we take over from here. We will deal directly with your UK scheme provider and also provide regular updates to you and your Financial Adviser on the progress of the transfer.

We will continue to work with the UK provider until the funds arrive safely in Australia.

STEP 5 – YOUR FUNDS ARRIVE IN AUSTRALIA

At this stage, the funds arrive into the AFEX account where the currency exchange takes place. The transfer administration team will then deduct set up and transfer administration fees and also any adviser fees.

A calculation of the tax due on the transfer will also be made and paid to the Australian Tax Office (ATO) on your behalf, before moving on to investing your funds.

STEP 6 – INVESTING YOUR MONEY

We will invest the money in line with the investment instructions you have provided on the application form. Choosing the right investments is an integral part of the process, as without a good strategy in place, you will limit the potential for good investment growth.

If you are not sure of the right investment funds to choose then this is when the help and advice from a suitably qualified financial adviser will benefit you.

STEP 7 – BECOMING A MEMBER

Once the funds have been successfully invested, you will officially become a member of the Australian Expatriate Fund and will receive a full welcome pack. This will provide you with login details so that you can access and view your account on our online client portal. Through this, you will be able to fully manage your account.

The transfer journey is certainly more complex when it comes to transferring a defined benefit pension compared to a defined contribution however our expert team will be on hand through every step of the journey in order to make the process as easy and painless as possible for you.

Do you have a UK pension you would like to transfer to Australia? If so, then contact a member of our team today for a free consultation and lets us help you get the ball rolling.

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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.

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Transferring UK Pensions Overseas and QROPS

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TRANSFERRING UK PENSIONS OVERSEAS AND QROPS

Since 2006 people moving abroad permanently from the UK, either to work or retire, have been able to transfer their UK registered pension overseas with them to a suitable qualifying overseas recognised pension scheme (QROPS). Once you have been a non-UK resident for 5 consecutive tax years, depending on your circumstances, there could be advantages transferring to a QROPS for retirement planning purposes. This article will examine those potential advantages and the rules surrounding overseas transfers you need to be aware of.

The Lifetime Allowance Test

The lifetime allowance is a limit on the amount of money you can withdraw from your pension before triggering an extra tax charge from HMRC. The lifetime allowance at the time of writing is £1,073,100 and will be frozen until April 2026. When a UK pension is transferred to a QROPS, a lifetime allowance test is applied on the pension by the transferring UK pension scheme. If you have a large pension fund you could transfer to a QROPS and have the lifetime allowance test before it exceeds the limit. The pension fund can then grow beyond the limit without having any further tests applied.

The lifetime allowance test also applies to any uncrystallised funds paid out as a lump sum death benefit, beneficiary’s drawdown or annuity. Any excess will be subject to the lifetime allowance charge in the normal way. A transfer to a QROPS prior to the fund exceeding the limit will avoid the test being applied when the death benefits are paid.

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Death Benefits

The tax treatment of death benefits paid from a Gibraltar QROPS can be more favourable than those paid from a UK money purchase scheme. Under UK rules, if a member dies over the age of 75, a death benefit lump sum payment to a beneficiary will be subject to the beneficiary’s marginal rate of tax. A lump sum death benefit can be paid tax free from a Gibraltar QROPS to a beneficiary, even though the deceased member was over 75.

Gibraltar QROPS incorporate discretionary powers over the payment of any lump sum death benefit, where members provide guidance via non-binding nominations. When discretion does apply, the death benefits normally fall outside the members’ IHT estates. However, there can be IHT consequences if a member transfers between pension schemes or increases contributions while in severe ill health and dies within two years. HMRC’s summary of HMRC v Parry 2020 (the Staveley case) indicates HMRC has not changed its stance on the IHT treatment of pension transfers motivated by death benefit improvements.

Contributions to a Gibraltar QNUPS (Qualifying Non-UK Pension Scheme) can also be made for the purposes of pension provision. Provided the member is not in serious ill health at the time the contributions are made, funds accumulated within the QNUPS will be outside the member’s IHT estate. QNUPS in Gibraltar also offer greater investment flexibility compared to UK pension schemes.

Pension Benefits

Once you have been a non-UK resident for 5 consecutive tax years and reached the age of 55, a Gibraltar QROPS can pay 30% of the pension fund as a pension commencement lump sum (tax free). Normally, only 25% can be paid as a PCLS payment in the UK.

The rest of the fund must be retained to provide an income for life. A key advantage of taking an income from a Gibraltar QROPS is that the income payments only attract a 2.5% tax rate.

Safeguarded Benefits

Safeguarded benefits include defined benefits, guaranteed minimum pensions and guaranteed annuity rates. If a member has safeguarded benefits worth more than £30,000, they must receive regulated advice from a UK financial adviser before transferring those funds. This requirement includes overseas transfers, where the member is also likely to need advice from an overseas based adviser in respect of the other country’s pension and tax regime.

QROPS Rules

In order to be a QROPS, an overseas pension scheme must first be a recognised overseas pension scheme (ROPS). An overseas transfer is only an authorised payment if the receiving overseas scheme is a QROPS as at the date of the transfer. A transfer to an overseas pension which clearly is, or later turns out to be, a non-QROPS as at the date of the transfer is an unauthorised payment, subject to a 40% unauthorised payment charge and possibly also a 15% unauthorised payment surcharge and a scheme sanction charge. HMRC publishes a ROPS list, warning that the member is responsible for establishing whether an overseas pension scheme is a QROPS before transferring.

To become a QROPS, all the following must apply:

  1. The scheme must self-certify to HMRC that it is a recognised overseas pension scheme.
  2. HMRC must not have excluded it from being a QROPS.
  3. It must undertake to report certain details on UK tax relieved pension funds and inform HMRC if it ceases to be a QROPS.

UK tax charges can still apply for a period after transferring to a QROPS. Unauthorised member payment tax charges can apply if certain investment and benefit restrictions are breached. A 25% overseas transfer charge will also apply on transfers to QROPS that do not meet one of the exemptions specified by HMRC. A member must be tax resident in the same country as the one in which the QROPS is established or is tax resident in Gibraltar, or the EEA, and the QROPS is established in the EEA or Gibraltar.

The transferring UK pension scheme must carry out the LTA check and calculate any LTA charge before calculating any overseas transfer charge. If both charges apply, the scheme calculates the overseas transfer charge on the value of the fund available for transfer after deducting the LTA charge.

Investment Options

Gibraltar QROPS are mostly open architecture which means the member can choose their own investments. A wide range of investments can be selected from exchange traded funds, collective investment funds, securities to physical gold.

Gibraltar

Financial services in Gibraltar are regulated and licensed by the Gibraltar Financial Services Commission. Pension scheme operators in Gibraltar must obtain a pension scheme controller license in order to offer QROPS. Under the conditions of the license, Gibraltar QROPS providers must take steps to protect their members. For example, they must ensure the member has received appropriate advice from a regulated financial adviser. They must also treat members as retail investors and take sufficient steps to protect them from high-risk non-retail investments.

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.

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what is qnups

What is a QNUPS?

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What is a QNUPS?

We receive many enquiries from people asking us, what is a QNUPS? In this article, we will cover the main features and highlight some benefits of QNUPS.

A QNUPS is an overseas pension plan that provides expats who are retiring overseas with an alternative method to save for their retirement. QNUPS stands for Qualified Non-UK Pension Scheme and is a regulated tax-efficient pension scheme.

Although a QNUPS is a pension fund it does differ from standard UK personal pension plans and Qualifying Recognised Overseas Pension Schemes (QROPS) in that they offer a degree of investment flexibility and have some significant tax advantages that a standard personal pension does not have.

Other features of a QNUPS which may be of benefit to investors include the following:

  • No tax on investment growth - This means that no Capital Gains Tax (CGT) will apply.
  • No UK inheritance tax charge upon death – This makes a QNUPS a useful inheritance tax planning tool, as your nominated beneficiaries will not be subject to a tax charge when you die.
  • No Lifetime Allowance Tax (LTA) charge – This allows investors to contribute and grow their retirement savings as much as possible without limits.
  • Flexible Investment choices - An investor can hold assets such as property and physical silver whereas most other pension schemes would not normally offer this investment flexibility. Other assets like art or fine wine that would normally form part of ones estate can also be held within the QNUPS.
  • No maximum age limit to take a QNUPS- Investors can open a QNUPS at any age and there is normally no minimum investment value.
  • No maximum age to make contributions- Unlike other pension schemes in the UK there is no maximum age limit to contribute.

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QNUPS are a tax-effective way to save for retirement and shelter assets from wealth taxes on death for many expats. We would always recommend that you seek expert financial advice before considering investing into a QNUPS, to ensure that any actions you take are in your best interest.

Rules you should be aware of with QNUPS

  • Employees and employers can both pay into a QNUPS but will not benefit from tax relief on the contributions.
  • Tax on QNUPS benefit payments will vary depending on the tax laws of the country you reside in.
  • If you transferred your UK Pension funds directly to a QNUPS this would be classed as an unauthorised payment by HMRC and a tax charge of 55% would apply to the transfer value.
  • Most pension scheme death benefits are outside the member’s IHT estate. This is provided that the trustees or administrators have discretion over payment of the death benefits. However, HMRC may still treat some or all of the death benefits as falling into the member’s IHT estate if they’d made contributions to a new scheme while they were in severe ill-health and then died within two years. HMRC can then treat them as making a chargeable lifetime transfer for IHT purposes in respect of some or all the value of their death benefits.

QNUPS with IVCM

At IVCM we offer a QNUPS option in Gibraltar and New Zealand. If you would like to find out more about investing into a QNUPS, please do not hesitate to contact us and a member of our team would be happy to answer any questions you may have.

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.

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3 Reasons why delaying transferring your UK Pension to Australia can cost you money

3 Reasons why delaying transferring your UK Pension to Australia can cost you money

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Transferring a UK Pension overseas can be somewhat of a daunting process to many people causing them to either delay making a decision or even be put off completely by the process.

In this article we will cover 3 important reasons as to why delaying transferring your UK pension may COST YOU MONEY!

1. Tax

When you transfer your UK Pension you are assessed for tax on transfer. The amount of tax you pay depends on the ‘applicable fund earnings’ (investment growth) achieved within your plan from the date you became an Australian resident, to the date you transferred your pension to Australia. If transferring to our Australian Expatriate Superannuation Fund (AESF) the investment growth achieved will be taxed at a fixed concessional rate of 15%.

Lets take an example – Your UK Pension was valued at $100,000 at the date you became an Australian resident. When you transferred it to the AESF, the value had grown to $150,000. Therefore, the growth achieved of $50,000 would be taxed at 15%. If you decided to transfer your pension much earlier then you will have minimized the investment growth achieved in the UK and in turn reduced your tax bill upon transfer.

Additionally, if you transfer your UK Pension within 6 months of becoming an Australian resident, the investment growth achieved during this period would be FREE OF TAX.

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2. Exchange Rate Risk

Exchange rate risk is always going to be something to consider and it’s a risk on both sides of the coin, whether your funds are held in AUD or GBP. However, under the current climate there is one topic that could have a significant impact on your UK funds if you delay transferring to Australia and that topic is – BREXIT!

There is continued uncertainty and worry growing amongst the British population with many concerned that the effect of BREXIT could effectively knock the value of the British pound ‘off the cliff’. Therefore, transferring your pension to Australia before BREXIT and before the value of the pound potentially drops, could save you money.

Our Australian Expatriate Superannuation offers investment choices in multi-currency. We have AUD, GBP and USD options available for you to invest in which will allow you to take advantage of the best currency exchange rates and try to reduce the negative impact of currency risk, where possible.

3. Changes to Legislation

The financial services industry is an ever changing landscape and there is always the potential for changes to legislation that may have a significant impact on you and your objectives.

In recent years there have been changes introduced that has had a huge impact on people wanting to transfer their UK pension to Australia.

Firstly, in 2016, the ‘Overseas Transfer Charge (OTC)’ was introduced. This applied to anyone transferring a UK pension overseas. In summary if you were not a resident in the country you transferred your UK Pension to, or did not meet an exemption, then a 25% tax charge would be applied to the transfer. Read more about Overseas Transfer Charge here.

This had a significant impact on pension transfers overseas. Many people who delayed transferring didn’t manage to move their funds before this rule was introduced and were impacted significantly.

Another example of legislation change was the non-concessional contribution limit changing in Australia in 2017 from $540,000 to $300,000. This had a significant impact on people looking to transfer their UK pension who had a value above $300,000, as they either had to pay tax on the excess or look at segmenting their transfer of a longer period of time, which exposed them to other risks like tax and currency risks as described above.

So as you can see there are some strong reasons why you should consider taking action sooner rather than later with your UK Pension. We understand that the prospect of transferring a UK Pension can be daunting but at IVCM it is our job to make the process as simple and as efficient as possible for you. We have a team of experts who have helped 100s of UK expats transfer their UK Pension to Australia and we are always on hand through every step of the transfer journey.

If you would like to find out more about transferring your UK Pension to Australia, call us 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.

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5 reasons to consider transferring your UK pension to Australia

5 reasons to consider transferring your UK pension to Australia

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What is a QROPS?
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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.

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A Guide to a Self Invested Personal Pension (SIPP)

A Guide to a Self Invested Personal Pension (SIPP)

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A Guide to a Self Invested Personal Pension (SIPP)

In this guide, we will provide answers to the main questions we receive regarding Self Invested Personal Pensions (SIPPs). This will give you a good understanding of the mean features of them and how they work.

What is a SIPP?

A SIPP is a Self Invested Personal Pension, which as it states in the title, is a type of personal pension arrangement.

A SIPP is an extremely tax-efficient retirement savings vehicle, providing you with a platform to save for a better retirement lifestyle. When you contribute to your SIPP, the government will reward your contribution with a top in the form of tax relief. This is one of the most attractive features of a SIPP which is a common reason why many people choose to use them.

SIPPs also offer a much wider range of investment options than standard personal or group personal pension arrangements.

These range from the following:

  • UK & Overseas Stocks and Shares
  • Collective Investments (i.e. OEICs and Unit Trusts)
  • Investment Trusts
  • Property and Land

A SIPP is a ‘Defined Contribution’ arrangement that you or your employer may contribute to. However, there are limits on the total amount that can be contributed each tax year if you are to receive tax relief on the contributions.

Under current legislation, you can begin to withdraw your retirement funds when you reach age 55. We will cover the retirement options in more detail, later in this guide.

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Key Benefits of a SIPP

The main key benefits of a SIPP are as follows:

  • When contributing to the SIPP you can receive ‘basic rate’ tax relief on the contributions you make. A basic rate tax payer can benefit from 20% tax relief, meaning that your SIPP will be topped up by an additional 20% when contributing to it. As an example, if you contribute £80, the contribution will be topped up by an additional £20, meaning that that the actual amount applied to your SIPP would be £100 Higher rate Tax payers can claim 40% tax relief and additional rate taxpayers, 45%.
  • The investment funds held within a SIPP can grow free from UK Income and Capital Gains Tax.
  • When drawing benefits in retirement, you may take up to 25% as a tax-free lump sum.
  • The value of your SIPP does not form part of your estate for Inheritance Tax Purposes.

How do SIPPs compare with other pension schemes?

A SIPP is classified as a ‘Defined Contribution’ pension scheme. This is because your benefits in retirement are defined by the total contributions you or your employer make and investment growth achieved throughout the life of the plan. In comparison to other defined contribution arrangements (i.e. a personal or stakeholder pensions), a SIPP provides greater investment choice for your funds, providing access to a wide range of UK & Overseas Stocks & Shares, Collective Investments, Investment Trusts and Property. Most personal pensions offer a limited range of investment funds which are normally part of the insurance companies own fund range.

SIPPs also provide greater flexibility when taking benefits in retirement as you can take advantage of the flexible drawdown facility. This means you may withdraw as much or as little of your pension fund as you require, providing greater control over your retirement funds. Personal Pensions typically offer the standard retirement options which would be to take a 25% tax-free lump sum and use the remaining pension fund to purchase an Annuity or take no tax-free lump sum and use the full fund to purchase an Annuity.

How much can I contribute to my SIPP?

The amount you can contribute into any UK pension and benefit from basic rate tax relief depends on the level of your salary and the amount of income tax you pay. To qualify for basic rate tax relief you can contribute up to 100% of your salary or up to the annual allowance of £40,000, whichever is lower.

For every contribution you make into your pension, the government will also contribute an additional 20%. This top up is known as ‘Basic-rate tax relief’. This will apply to anyone under the age of 75, even non-taxpayers.

The basic-rate tax relief is automatically added to your pension plan anytime you contribute as your pension scheme provider claims the relief on your behalf and adds it to your pension pot. However, if you are a higher or additional rate tax payer, then the extra relief must be reclaimed through your tax return. Higher rate tax payers can claim a further 20% and additional rate tax payers can claim an additional 25%.

What is the lifetime allowance?

In simple terms, the Lifetime Allowance (LTA) is the total amount of pension savings you can accumulate during your lifetime without being subject to an additional tax charge. The current Lifetime Allowance is £1,073,100. When you reach age 55 and seek to withdraw your retirement funds, if the total value exceeds this limit then you will be liable to a tax charge on the amount above the LTA limit.

How do I withdraw funds from my SIPP?

Once you reach age 55, you may begin drawing benefits from your SIPP.

The options available to you are:

  • Annuity: An annuity is purchased using the value of your pension fund. Before purchasing an annuity, you may opt to take 25% of the total fund value as a tax-free lump sum and use the remaining balance to purchase the Annuity. An Annuity will provide you with a secure pension income for life which may be paid to you monthly or annually.
  • Drawdown: There are two types of drawdown you may choose which are ‘Capped’ and ‘Flexible’.
    Capped Drawdown allows you to draw income from your SIPP which is subject to maximum limits. These limits are calculated by the Government Actuary Department (GAD). Flexible Drawdown allows you to draw as much or as little of your pension funds as you require, giving you much greater control over your retirement funds. Any income you draw will be subject to UK Income Tax at your marginal rate.
  • Uncrystallised Funds Pension Lump Sum (UFPLS): This option allows you to draw funds without purchasing an Annuity or going into Drawdown. With this option, you may draw 25% as a tax-free lump sum and leave the remaining 75% to draw taxable pension income.

What is Flexible Access Drawdown?

When you enter into ‘Flexible Access Drawdown’ you can draw as much or as little from your pension as required, providing a greater level of control over your retirement funds. You can benefit from accessing some of your pension funds, whilst leaving funds invested. The term used when accessing part of your pension fund is ‘Crystallisation’.

As an example, you have a pension fund valued at £100,000, you decide to ‘Crystallise’ £10,000, meaning that you could withdraw 25% (£2,500) of the crystallised portion as a tax-free lump sum and use the remaining £7,500 to purchase an Annuity. Alternatively, you could opt to leave £7,500 invested in the SIPP which can continue to benefit from investment growth. The remaining £90,000 would be left ‘Un-crystallised’ and would continue to benefit from potential investment growth.

What happens to my SIPP if I die?

Upon death, your pension funds will be paid to your nominated beneficiaries either as a lump sum or an ongoing pension income. You would need to make sure that you complete a ‘Death Benefit Nomination’ form so that your pension funds will be allocated in line with your wishes. Pension funds do not form part of your estate and therefore will not be subject to Inheritance Tax.

The way in which death benefits are treated varies depending on whether or not your death occurred before or after the age of 75. This is summarised as follows:

Death Benefits where death occurs before the age of 75

In this scenario, the nominated beneficiary may opt to take a lump sum or a regular income. In any event, the benefits will be paid free of UK Income Tax.

Death Benefits where death occurs over the age of 75

The options in this scenario are the same in that the nominated beneficiary may opt to either take a lump sum or receive regular pension income. However, the benefits received will be subject to UK Income Tax.

If a lump sum is taken, this will be taxed at 45%. If a regular income is taken, then the beneficiary will pay UK Income Tax in line with their marginal rate.

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.

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UK Pension Tax Relief

UK Pension Tax Relief

UK Pension Tax Relief

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UK Pension Tax Relief

One of the most attractive features of saving for your retirement using a UK Personal Pension is the benefit of tax relief on the contributions that you make.

In this article, we will cover the main features of tax relief for pension contributions.

What is Pension Tax Relief for Contributions?

Pension tax relief was introduced as a government incentive for people to save for their retirement. Instead of paying tax on the contributions you make, the government tops up your pension contribution. However, there are limits on the amount of tax relief you can receive on your contributions.

The Rules

In the current tax year, UK taxpayers can obtain ‘basic rate’ tax relief on pension contributions of up to 100% of their ‘relevant UK earnings’ or, the ‘Annual Allowance’ of £40,000, whichever is lower. The annual allowance is the limit you can contribute to your pension each tax year and receive tax relief.

For every contribution you make into your pension, the government will top this up with an extra 20%. This extra top-up is known as ‘Basic-rate tax relief’. This will apply to anyone under the age of 75, even non-taxpayers.

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Let's Take an Example

Paul earns £30,000 per annum, making him a basic rate taxpayer. He makes a contribution to his pension during the current tax year of £35,000. Paul would only receive tax relief on £30,000 of the contribution as tax relief only applies on contributions up to 100% of your salary.

Paul’s pension plan will receive a total contribution of £36,000. This is broken down as follows:

Paul’s personal contribution: £30,000

Government top up in the form of tax relief:  £6,000 (20% of £30,000)

Total Contribution - £36,000

The basic-rate tax relief is automatically added to your pension plan anytime you contribute as your pension provider claims the relief on your behalf and adds it to your contribution.

Additional tax relief is can also be claimed for higher and additional rate taxpayers.

The table below summarises the levels of tax relief for UK Tax Payers:

Tax Band Pension Tax Relief
Basic Rate 20%
Higher Rate 40%
Additional Rate 45%

For higher and additional rate taxpayers, the extra relief must be reclaimed through a tax return. Higher rate taxpayers can claim a further 20% tax relief and additional rate taxpayers can claim up to 25%.

Let's Take Another Example:

Carol earns £50,000 per annum, making her a higher rate taxpayer. She makes a contribution of £30,000 during the current tax year. Carol will receive basic rate tax relief of 20% which will be claimed on her behalf through her employer. She can also claim an additional 20% relief from HMRC as she is a higher rate taxpayer.

Carol’s pension will receive a total contribution of £42,000. This is broken down as follows:

Carol’s Personal Contribution - £30,000

Government top-up in the form of tax relief:  £6,000 (20% of £30,000)

Additional 20% relief - £6,000 (20% of £30,000)

Total Contribution - £42,000

These examples just show why UK pensions are an extremely attractive and tax-efficient method of saving for your retirement.

For more information on UK Pension Tax relief, visit here.

Alternatively, if you would like to talk to one of our consultants about contributing to a pension plan or would like to find out more about setting up a pension plan, contact us today and a member of our team would be happy to 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.

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What happens to your SIPP when you die

What happens to your SIPP when you die

What Happens to Your SIPP When You Die?

What is a SIPP?
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What happens to your SIPP when you die?

For many people, their Pension is one of their largest assets for providing an income when they retire. As a result. we are often asked, what happens to my SIPP when I die.

In this article, we will cover the basic rules regarding the treatment of your SIPP funds when you die.

When you die, your pension funds will be paid to your nominated beneficiaries either as a lump sum or an ongoing pension income. Pension funds do not form part of your estate and therefore will not be subject to Inheritance Tax.

The way in which death benefits are treated varies depending on whether or not your death occurred before or after the age of 75 and whether or not you have started taking income from your pension.

Death Before Age 75

Uncrystallised Funds - The term ‘uncrystallised’, just means that you have not started taking any income from your pension in the form of ‘income drawdown’. In this scenario, the full fund can be paid to your nominated beneficiary, completely tax-free, either as a lump sum or as regular income in the form of an annuity or income drawdown.

Crystallised Funds - The term ‘Crystallised’ means that you have started taking income from the plan in the form of ‘income drawdown’. This could be regular income or even just a one-off lump sum. In this scenario, the full fund can also be passed to your nominated beneficiary, completely tax-free, as a lump sum or as a drawdown pension.

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Joint Life Annuity - If you are receiving annuity payments on a joint life basis, then your chosen beneficiaries can continue receiving the payments, tax-free.

Guaranteed Term Annuity
- As with a Joint Life Annuity, then your chosen beneficiaries can continue receiving the payments, tax-free.

Annuity Protection Lump-Sum Death Benefit - Your chosen beneficiary will receive a tax-free lump sum.

Death Before Age 75

In this scenario, regardless of the fund was crystallised or uncrystallised, when death occurs after the age of 75, your nominated beneficiary would be taxed on the amount they receive at their marginal income tax rate. For uncrystallised and crystallised funds, they can choose for the fund to be paid to them as a lump sum, an annuity or as a drawdown pension. For Joint life and Guaranteed Term Annuities, they will receive the annuity payments but taxed at their marginal rate. For the Annuity Protection Lump-Sum Death Benefit, they will receive a lump sum payment which is also taxed at their marginal rate.

Another big important factor to consider is the ‘2-year rule’.

The 2 Year Rule

In simple terms, if death occurs before the age of 75, in order for the beneficiary to receive a tax-free payment, a death claim must be made within 2 years of the date of death.

If the chosen beneficiary makes a death claim after this period, then the income or lump sum they receive will be taxed at their marginal income tax rate.

You can also find out more information regarding the tax on the pension death benefit.

If you would like to talk to someone regarding rules surrounding pension death benefits, contact us today and a member of our team would be happy to help.

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.

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Superannuation Guarantee

What is the Superannuation Guarantee (SG)?

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What is the Superannuation Guarantee (SG)?

In the world of Superannuation, there are many common terms that are used, many of which most people have no idea what they mean. In this article, we will be discussing the ‘Superannuation Guarantee (SG)’ which will cover some things you should know.

In Simple Terms:

The Superannuation Guarantee (SG) is a compulsory contribution that your employer is required to pay into your Superannuation Fund, on your behalf. They are required to make this contribution by law which is an extremely beneficial feature of retirement saving with Superannuation Funds.

As it stands, the rate of Superannuation Guarantee contributions is 10% of your annual salary which is usually split into quarterly payments. The contributions that you receive are part of your remuneration package and they are normally paid on top of your salary.

In order to be eligible for SG payments, you must be at least 18 years of age and earn a minimum of $450 per month (before tax).

How are Superannuation Guarantee Payments Taxed?

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These contributions are classed as ‘Concessional’ contributions meaning that they are ‘before tax’ contributions. Upon entry into your Superannuation fund, they will be taxed at 15% if you earn below $250,000. If you earn more than this, tax at 30% will be applied. For more information on the tax treatment of retail super funds, check out our article Retail Super Funds – The 3 Stages of Tax.

If you have any questions about SG or general superannuation enquiries, contact us today and a member of our team would be happy to answer any questions you may have.

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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.

Read more...