On this page
Recent changes to legislation have made it more difficult to transfer UK pensions to Australian superannuation funds. These changes could affect thousands of people who have worked in the UK for any period of time and who want to transfer their accumulated pension savings to an Australian super fund.
Who can transfer?
Changes to UK legislation in 2015 prohibit people from transferring their pension funds before they have reached the minimum UK pension age of 55. Previously, people of any age could transfer these funds.
Eligible Australian superannuation funds can accept transfers from members up to the age of 75.
What funds can you transfer to?
UK pension funds are only eligible to be transferred to a fund that is recognised as a Qualifying Recognised Overseas Pension Scheme (QROPS) by the British government’s HMRC (Her Majesty’s Revenue and Customs) department. Any Australian superannuation fund that wishes to be eligible to receive UK pension transfers must therefore apply to the HRMC and satisfy their QROPS requirements.
The HRMC publishes a list of Australian super funds that have met these requirements on their website. It’s important to note that the vast majority of these funds are self-managed super funds (SMSFs). That’s because most large Australian industry, retail and public sector funds do not meet the strict QROPS eligibility requirements that were introduced in 2015.
Under the 2015 UK pension legislation, a QROPS must not allow its members to withdraw funds before they reach the age of 55 unless they are forced to retire due to ill health. However, under Australian legislation, superannuation funds can allow their members to withdraw prior to 55 in other limited circumstances, for example if they are in severe financial hardship or on compassionate grounds. Australian super funds need to allow for early early access to super in these situations, but this also makes them ineligible for UK pension transfers.
SMSFs are therefore currently the primary vehicle for UK pension fund transfers to Australia. These SMSFs are specifically set up to restrict membership to people over the age of 55 in order to qualify as a QROPS.
What are the tax implications?
The UK pension funds transferred to eligible Australian QROPS and are not taxed in Australia provided they are received within six months of the member:
- becoming an Australian resident for tax purposes, or
- having their foreign employment terminated.
The transferred funds within this six-month window are classed as non-concessional (after tax) contributions.
Any earnings on pension funds received after the six-month tax-free window are taxed in Australia at the concessional superannuation earnings rate of 15%. This is known as applicable fund earnings.
The steps involved
If you’re over 55 and considering transferring your UK pension fund to an Australian superannuation fund, you should take the following steps:
Step 1 – Check with your UK pension fund to see if there are any transfer restrictions. For example, certain schemes may not be eligible for transfer, such as those currently in the payment phase.
Step 2 – Check to see whether your existing fund is a QROPS via the HMRC website. It’s unlikely that it will be though. We could not find any Australian retail or industry super funds in the list.
Step 3 – If you already have your own SMSF, obtain legal advice to amend your fund’s trust deed to comply with QROPS requirements (specifically, so that your fund’s membership is restricted to people aged over 55). Then proceed to Step 5.
Step 4 – If you don’t already have an SMSF, you should seek independent financial advice about whether or not you should set up an SMSF. Note that this is a decision that should not be taken lightly. There are considerable costs and ongoing regulatory compliance obligations involved with setting up a self-managed superannuation fund. Whether it’s a worthwhile option depends upon a person’s financial circumstances and goals.
If you decide to proceed with setting up an SMSF after obtaining this advice, continue to Step 5. Otherwise, you will need to leave your money in your UK pension fund.
Step 5 – Apply online to the HMRC to have your SMSF registered as a QROPS. Note that there are ongoing HRMC reporting obligations involved with being a QROPS. The HMRC approval process typically takes up to eight weeks.
Step 6 – Once your SMSF is registered as a QROPS, apply online to have your UK pension funds transferred. Again, it’s best to seek independent financial advice before proceeding, ideally from an adviser who is familiar with UK pension fund transfers.
It’s important to note that once you have received the funds into your SMSF, you may have the option of transferring them into another Australian fund if you don’t want to continue administering your SMSF. Again, seek independent financial advice to evaluate any associated costs and benefits if you want to pursue this strategy.
Transferring a UK pension to an Australian super fund can be a time-consuming and costly process. The information contained in this article is general in nature. It’s best to seek independent financial advice to determine whether transferring a UK pension is a suitable strategy for your individual financial circumstances.