UK pension: Transferring money to Australian super fund

We receive dozens of emails requesting information about moving pension funds from the United Kingdom into an Australian superannuation fund. For the UK to permit an individual to transfer retirement monies to another country, the UK government (more specifically Her Majesty Revenue and Customs, HRMC) requires the overseas pension scheme (in Australia, that is a superannuation fund) to be a Qualifying Recognised Overseas Pension Scheme (QROPS).

Any super fund in Australia, including a self-managed super fund, which seeks to be a QROPS must apply to the HRMC, and the HRMC must then approve that super fund as a QROPS. Many large Australian super funds are already QROPS so we suggest that you check whether your existing Australian super fund is a QROPS. The HRMC publishes a list of Australian QROPS that have agreed to have their names published, and this list is updated every 2 months (see this link for the QROPs list). The Australian QROPS indicate ‘Australia’ in the second column. It is still worthwhile checking with your Australian super fund directly because not all QROPS are published on this list.

Are you taxed when you transfer UK pension savings to Australia?

The tax payable in Australia (if any) on foreign super benefits transferred to an Australian super fund will depend on whether you transfer the benefits within 6 months of becoming an Australian resident, or transfer the benefits more than 6 months after becoming an Australian resident.

Transferring within 6 months of Australian residency

According to the ATO, if you transfer your overseas pension savings to an Australian super fund within 6 months of becoming a resident of Australia, or within 6 months of terminating your foreign employment, then no tax is payable on your transferred super benefits in Australia. If you transfer the overseas pensions savings to a QROPS, then the UK won’t hit you with tax penalties either (although you should seek UK tax advice before transferring any overseas pension savings to ensure that no tax is payable in the UK based on your individual circumstances).

Transferring more than 6 months after gaining Australian residency

If you transfer your overseas pension savings more than 6 months after becoming a resident of Australia (or terminating your foreign employment), then some tax will be payable in Australia on the transferred benefits. According to the ATO, “if you have a superannuation lump sum from a foreign super fund transferred directly as assessable income of the Australian super fund.”

What this means is that if you transfer your overseas pension savings more than 6 months after becoming an Australian resident then 15% tax will be payable on the assessable part of the transfer. The obvious question is: how do you work out the assessable part of the transfer? The answer to this question: According to the ATO, the assessable amount of a super lump sum from a foreign super fund transferred directly to an Australian super fund is the ‘applicable fund earnings’, namely, the growth in the person’s foreign super fund account between the time an individual becomes an Australian resident and when the lump sum is paid.

Important: The assessable amount of the transfer is treated as part of the taxable component of your total super benefit.

Note: You have to actively choose to have the ‘applicable fund earnings’ treated as assessable income of the Australian super fund. If you don’t choose your super fund to pay this tax, then you will pay tax on the earnings in your personal tax return, at your marginal tax rate (rather than the 15% tax paid by the super fund). The balance of the transferred amount (that is, the part that is not assessable) will be tax-free when entering the Australian super fund.

The ATO explains the tax treatment of transferred foreign super benefits in more detail on its website: see this ATO link.

Transferred benefits count towards the contributions caps

Apart from seeking financial advice on the tax implications in the UK, and verifying the Australian tax treatment of your transferred super benefits with your super fund, you need to be mindful of the superannuation contributions caps when transferring superannuation benefits.

In most cases, the transferred amount will count towards your non-concessional (after-tax) contributions cap, and can be contributed with no Australian super tax charge, provided the amount is within the non-concessional cap. For the 2013 and 2014 financial years, the non-concessional cap is $150,000 a year, although (if you’re under the age of 65) you can use the future years’ caps and make up to $450,000 in non-concessional contributions in one year (this larger contribution is known as a bring forward). If your foreign benefit is larger than $450,000 then you will need to discuss it with your super fund because it may not be able to transferred in one go (which may not suit the UK fund).

Note: If you’re aged 65 or over, then you need to satisfy a work test for the Australian super fund to receive the transfer. The work test involves working 40 hours in a 30-day period in the financial year in which you make the transfer, and practically, it means doing the work before making the transfer because the Australian super fund will require some type of work declaration from you.