How to transfer a UK Pension

How do you transfer your UK Pension to Australia?
If you lived and worked in the United Kingdom for any period of time you will have most likely accrued some savings in a UK pension. If you now live in Australia, you will want to make sure that you are able to access that money.

However, there have been a number of legislative changes in both the United Kingdom and Australia, and these changes have made the transfer of UK pension money to an Australian super fund a bit tricky.

There are a number of questions you need to answer before you look into transferring your UK Pension fund to Australia.

Are you old enough?
You need to be at least 55 years or over to be eligible to transfer your UK Pension to Australia.

On 6 April 2015, Her Majesty’s Revenue & Customs (HMRC) disqualified all Australian qualifying recognised overseas pension scheme (QROPS) funds because they permitted access prior to age 55 if a member met the financial hardship provisions.

This access rule is not available under UK pension rules, so this meant that Australian QROPS funds placed members in a better position than their counterparts in the United Kingdom.

Since the 2015 rule change, many new QROPS funds in Australia are set up as Self-Managed Super Funds (SMSF). These funds can be written under specific trust deeds that only permit membership for those aged 55 or over and therefore comply with HMRC requirements.

You must transfer your UK Pension fund to an Australian QROPS complying super fund or you will be hit with a tax penalty of up to 55 per cent of the value of your fund.

Will Australia allow the money to be transferred?
Transferring money from a foreign account such as a UK pension fund is not treated by the Australian Taxation Office (ATO) as a transfer or rollover of existing benefits, but as a new contribution. That means you need to ensure your UK pension fund complies with the Australian contribution rules for non-concessional contributions.

To comply with the rules for non-concessional superannuation contributions you need to be under 65 years of age, or satisfy the work test. To satisfy the work test, you must have worked at least 40 hours within 30 consecutive days in a financial year before your super fund can accept contributions for you.

You are entitled to contribute $100,000 per tax year as a non-concessional contribution.

If you are under 65 years of age, you can contribute for the current tax year and the next two tax years in one transaction. Therefore, you can contribute up to $300,000 in a single year, and then cannot contribute again for the next two years.

Will a transfer be taxed in Australia?
The ATO explains that you may have to pay tax as a result of transferring your UK pension if any portion of the transferred amount was accrued after you became an Australian resident.

Within six months of becoming a resident
If you receive your pension payout within six months of becoming an Australian resident, the entire payment should be tax-free if the entirety of the lump sum was earned/accumulated by you when you were not an Australian resident and if the total sum transferred doesn’t exceed your ‘vested’ amount. The vested amount means that it doesn’t include any top-up or discretionary payments, and consists only of mandatory contributions along with their associated earnings.

Within six months of ceasing foreign employment
Your transfer should also be tax-free if it is made within six months of terminating your employment in the United Kingdom.

More than six months after gaining residency or ceasing employment
In your assessable income for the year, you must include the amount of the lump sum that relates to your UK fund earnings if you received the lump sum more than six months after gaining residency or ceasing foreign employment and were an Australian resident when you received it.

However, you may choose to pay the lump sum into a complying super fund. You can choose to have all or part of your applicable fund earnings included in the assessable income of that fund. If you do, then the amount of the super lump sum that you will include in your assessable income is the applicable fund earnings reduced by the amount of the applicable fund earnings you have chosen to be assessed in the fund.

The remainder of the super lump sum or any part of the super lump sum that is paid into another foreign super fund is tax-free.

Does the money from a UK pension have to be converted to Australian dollars?
No. Many people delay transferring their funds across because of a poor conversion rate. However, there is no legislative requirement to convert the funds into Australian dollars and it is possible to set up a qualifying QROPS SMSF in Australia with all of the investment portfolio invested in funds with British pounds.

Case study
Stephen is a plumber who recently migrated to Australia with a private UK pension fund of £66,000. He wants to find a super fund quickly that will accept both his employer contributions (for a job he is about to start) as well as his pension funds. He elects to have the funds invested in a portfolio in British pounds to avoid a poor conversion rate.

Stephen contacts a financial adviser who is able to establish a super fund within a couple of days and forwards the paperwork on to his employer so that he can direct the payments into the super fund of his choice.

Stephen’s financial adviser is able to invest his UK pension funds in a portfolio in British pounds, while also investing his Australian employer contributions in an Australian portfolio.

Related articles:
Retiring overseas
Will overseas trip affect pension?
Claiming your overseas pension