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.
- If you are aged 67 or over, you must meet the criteria of the ‘work test’ or be eligible for the work test exemption in order to contribute to your Super Fund.
- You can transfer a maximum of $300,000 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.
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.