From 6 April 2015, members of unfunded public sector pension schemes may no longer be able to transfer the money to an Australian QROPS (Qualifying Recognised Overseas Pension Scheme).
Other UK pensions may still be transferable to an Australian super fund beyond April, however the new rules could require a scheme member to take financial advice from a UK qualified adviser (if the transfer value is more than £30,000).
What does this mean for me?
Those affected may no longer have access to the potential benefits of transferring, including:
- Potentially being able to access capital sooner
- Saving up to 45% tax on your ongoing pension income
- Flexibility to access your pension as a full lump sum (which is tax free after age 60, rather than taxable as income in the UK)
- Control over your investments
- The ability to pass 100% of your remaining pension to your beneficiaries in the event of death
UK Pension Scheme versus an Australian QROPS
1. Retained UK Pension Scheme
Lump sum withdrawal
Generally 25% of total benefit tax-free lump sum. The balance is taxed at marginal tax rates (all taxable in Australia but tax offset for UK tax may be available)
Payment of UK benefits
UK income stream payments taxed in Australia at marginal tax rates (deductible amount if any must be determined)
Maximum tax rate 45% + Medicare Levy + Debt Levy if applicable.
Tax on income in the scheme
0% in UK Pension scheme.
Flexibility
Proposed rules allow more lump sum withdrawals in excess of the 25% lifetime limit but these are taxed; UK income streams are usually annuities.
Estate Planning
Full balance may not be available for beneficiaries; ‘inheritance’ tax may apply to the balance.
Centrelink income test/proposed CSHC changes
Income stream payments are assessed dollar for dollar unless a deductible amount can be established.
2. Australian QROPS
Lump sum withdrawal
On transfer to QROPS, growth relating to period of Australian tax residency generally taxed at 15% in the superannuation fund (assuming election is made), however ongoing withdrawals are very tax effective.
Payment of UK benefits
Payment of lump sum and income streams from age 60 are tax free;
Concessional tax rates for those aged 55-59
Lump sum withdrawals:
- First $185,000 of taxable component 0% tax rate
- Remainder at 15% + Medicare Levy
Income streams:
Taxable component taxed as income; 15% tax offset applies.
Tax on income in the scheme
Maximum 15% in super accumulation;
0% in pension phase (plus refund of Australian company tax, if applicable).
Flexibility
On meeting condition of release, benefit can be paid out as 100% lump sums or as ongoing pension (or any mix of the two).
Estate Planning
100% of super balance is available for distribution to beneficiaries;
100% tax free for dependants, but a portion may be taxable if paid to non-tax dependants.
Centrelink income test/proposed CSHC changes
New account-based pensions from 1 January 2015 will be subject to deeming;
Annuity payments may have a deductible amount.
What should I do next?
We would emphasise that there are relative merits of both options (ie retaining capital in the UK, or transferring to a QROPS in Australia).
Nexia can help compare the options based on your particular circumstances and objectives, to help you make an informed decision about the best way forward. Before making any decision to transfer your pension benefits, contact a Nexia Specialist for more information.
