Important - Have you transferred UK Pension (QROPS)? Please read

[Andrew from Vista Financial]

Hello

 

Important information for anyone that has or intends to transfer their UK Pension to an Australia Superannuation (QROPS) Fund.

 

Proposed changes by HMRC to UK Pension Transfers are now to come into effect from the new UK tax year 6 April 2012.

 

The changes can be read here http://www.hmrc.gov.uk/pensionscheme...s-template.pdf

 

 

It is very important if you have transferred to understand how these changes will impact on you.

 

The rules were:

 

that the receiving Australian (QROPS) scheme report member withdrawals for a term of 5 full tax years since ceasing to become a UK tax resident.

 

The rules now state:

 

that the receiving Australian (QROPS) scheme must report member withdrawals for 10 years from when the transferred Pension arrives.

 

 

This means that if you make a withdrawal from your transferred UK Pension within this time period and it is outside of the prescribed UK limits a tax charge of up to 55% can be levied by HMRC!!

 

This rule change suggests it will be retrospective, therefore anyone that has QROPS monies in Australia will have to adhere to the new timelines.

 

Therefore it is vital that if you intend to start drawing on your Australian Super (formerly UK monies) you are either outside of the reporting period or you seek advice on what you are able to draw.

 

Regards

 

 

Andy

Edited March 28, 2012 by Andrew from Vista Financial

[Dan Collins]

You made me worry about my Aus retirement strategy Andy...

 

I might be wrong, but does the 10 year change relate to 'reporting' only; the existing tax is still only payable within 5 years? I just wonder what they are up to by increasing the reporting period but not linking the tax over the same period. Dare I say they may change the tax in the future? I wonder?

 

It occured to me whilst reading up on the changes that if the 10 year rule applies to tax sometime, what if QROPS money was consolidated into a normal superannuation fund; say from an old employer but within the 10 years. Any future withdrawal post retirement could trigger a #shoutout to Mrs HMRC for some money, even if most of the money was domestic super.

 

Ouch.

 

Have a good weekend mate.

[Andrew from Vista Financial]

Hey Dan

 

Why are you still up!!!

 

Yes, there does seem to be some doubt in the material that has been published so far. Initially the reports produced did not seem to mention that the 'UP' time period was remaining the same and it was just the reporting time period that was being changed. However having read the further material produced specifically for QROPS Trustees (I am one with my SMSF) it mentions about the 5 year reporting period causing an 'UP' only.

 

We have written directly to the ATO to get clarification on this point as it is a huge issue (along with other points around 70% income for life etc, I think that this needs to be clearer) but I think that in the meantime airing on the side of caution is the wisest course of action.

 

You are right though and I wonder the same, if it is only the reporting period what will that achieve, I suppose it gives them the ability to keep records of what is going on with QROPS money and allows them to draw some conclusions around whether the same level of abuse is still occuring.

 

Lot of so called QROPS Advisers were completely abusing the system and this is HMRC flexing its muscles.

 

In relation to the future tax changes of course it could change again going forward but I think for people that are using the QROPS system correctly it will not be a real detriment to them, if it means having to follow the UK rules throughout retirement one day then so be it, that in itself will not be a detriment as that's the way it would have been if not transferred albeit a better tax outcome by benefiting from the tax free income environment in retirement in Oz on this money.

 

If it came to the crunch and someone had mixed together their QROPS and the domestic Super and was within 'UP" territory and required access to lumps sums etc then there are ways around this.

 

 

You have a good weekend too.

 

Andy

Edited April 20, 2012 by Andrew from Vista Financial

[devon67]

dont understand any of that

how will affect a person transferring a UK pension to OZ?

if i leave it alone till in 65 does it affect me?

[Andrew from Vista Financial]

dont understand any of that

how will affect a person transferring a UK pension to OZ?

if i leave it alone till in 65 does it affect me?

 

 

Hi Devon

 

 

That depends on your age when you transfer/ed it and how long you have been a non-UK tax resident for.

 

The news rules call for a reporting period of 10 years from when the money is received in the new QROPS fund.

 

The old rules were that the reporting requirement for the QROPS scheme was for a period of 5 full years of non-UK tax residency.

 

With the old rules If a withdrawal was made within the 5 year period and the withdrawal was not in line with UK rules then an unauthorised payment charge could be levied.

 

Now the reporting perioed has changed it was not so clear whether the unauthorised payment charge was extended to 10 years also to align with the new reporting period.

 

However it now seems as though the unauthoried payment charge period remains the same as before i.e the 5 year time period.

 

However as part of our due diligence we have written to HMRC for clarification on this as we have a client looking to draw out a lump sum who is outside of the 5 years but within the 10 years.

 

As charges of 55% can be levied we do not wish to take any chances!

 

Essentially, if someone is within the unauthorised payment charge timeframe withdrawals/pension payments can only be made that align to the UK rules so as not to cause a breach.

 

Regards

 

Andy

Edited May 2, 2012 by Andrew from Vista Financial

[boganbear]

As far as I am concerned, I've transferred my measly pension pot out of the thieving hands of the UK taxman and pension industry so their rules are irrelevant now. I've plenty of time left before I retire (if ever) but what can HMRC do about it? The money is now in Australia and nothing to do with them.

[devon67]

Hi Devon

 

 

That depends on your age when you transfer/ed it and how long you have been a non-UK tax resident for.

 

The news rules call for a reporting period of 10 years from when the money is received in the new QROPS fund.

 

The old rules were that the reporting requirement for the QROPS scheme was for a period of 5 full years of non-UK tax residency.

 

With the old rules If a withdrawal was made within the 5 year period and the withdrawal was not in line with UK rules then an unauthorised payment charge could be levied.

 

Now the reporting perioed has changed it was not so clear whether the unauthorised payment charge was extended to 10 years also to align with the new reporting period.

 

However it now seems as though the unauthoried payment charge period remains the same as before i.e the 5 year time period.

 

However as part of our due diligence we have written to HMRC for clarification on this as we have a client looking to draw out a lump sum who is outside of the 5 years but within the 10 years.

 

As charges of 55% can be levied we do not wish to take any chances!

 

Essentially, if someone is within the unauthorised payment charge timeframe withdrawals/pension payments can only be made that align to the UK rules so as not to cause a breach.

 

Regards

 

Andy

 

am sorry andy but your still not making this easy, can i have it simple terms please ie what is a reporting requirement

what happens if i transfer my pension which ive had since 1998 as a local government pension and place it in an oz pension scheme with my employer?

im now 44 so what is the cost to me?

or what if i freeze it here and then take the payments with my state pension direct from the uk/

or start another pension here once i start work?

am i facing huge tax charges?

any help would be great

cheers

[Andrew from Vista Financial]

Hi Devon

 

The thread was actually aimed at people that had already transferred their Pensions and so should have an understanding of the QROPS implications and the reporting periods.

 

Most of the questions you are asking can really only be answered on a personal level as they will be specific to you.

 

However I will try to answer some of them.

1. A reporting period is whereby the receiving Australian scheme i.e QROPS fund must report all withdrawals/payments to Her Majesties Revenue & Customs for a period of time (this used to be 5 full tax years from someone being a non-UK tax resident but has now changed to 10 years from when the monies were transferred to Australia).
   
2. Too much to explain what happens if you transfer (you should take advice on what is right for you).
   
3. If you do not transfer your pension it will automatically become frozen (deferred) once you leave your employer but the benefits accrued thus far will still increase with the cost of living and you can have it paid to you at the schemes normal retirement age (NRA).
   
4. There are various tax implications whether someone transfers or not (again you should take advice to ascertain what these will mean specifcally to you).
   

 

 

Do not rush into anything, a transfer to Australia should firstly only be considered once you have settled here and intend to remain here.

 

Regards

 

Andy

Edited May 8, 2012 by Andrew from Vista Financial

[landscaper81]

Hi Andrew,

Just read your posts and they have great information in them.:notworthy::notworthy: I will hopefully be joining the world of oz very soon , once i sell my house back here in Scotland. I currently work with my local government and have quite a good pension scheme (strathclyde pension fund). i have approx 15 years worth of pension to transfer over and was wondering if you can recommend any good Australian pension schemes and how do the employers work towards pensions, ie do they pay in percentages of salaries or is it fixed rates etc. Any help in this matter or any information regarding pensions would be great .

 

regards

 

tony

[Andrew from Vista Financial]

Hi Andrew,

Just read your posts and they have great information in them.:notworthy::notworthy: I will hopefully be joining the world of oz very soon , once i sell my house back here in Scotland. I currently work with my local government and have quite a good pension scheme (strathclyde pension fund). i have approx 15 years worth of pension to transfer over and was wondering if you can recommend any good Australian pension schemes and how do the employers work towards pensions, ie do they pay in percentages of salaries or is it fixed rates etc. Any help in this matter or any information regarding pensions would be great .

 

regards

 

tony

 

 

Hi Tony

 

 

First of all good luck with your house sale in Bonnie Scotland, fingers crossed for you.

 

In relation to your Strathclyde Pension (I assume this is a final salary scheme) there is certainly no rush to do anything at this stage.

 

Generally you should only consider a transfer to Australia once you have resided here long enough for you to be satisified that it is your intention to remain in Australia or be in Australia for retirement.

 

Once you then feel that is the case then you should seek professional advice from an Advisor that is familiar with both systems. The way that UK Final Salary schemes work are very different to how the Superannuation system works here in Oz.

 

There can be some very good reasons in having UK Pension transferred to Australia especially from a tax and Centrelink point of view however it does not always make sense to transfer.

 

Receiving the correct advice should put you in a situation whereby you and your Adviser can discuss where your retirement monies are best placed with the benefit of being fully informed of all the implications.

 

 

 

In relation to how employers operate with regards to Pensions/Superannuation, generally as an employee your employer will have to make mandatory Superannuation Guarantee payments currently 9% of salary into a Superannuation Fund on your behalf.

 

Nowadays most employees have the ability to choose a fund of their choice and therefore it is possible to do your own research of take advice on a fund that may suit, alternatively the employer usually offers a default scheme that you can go with.

 

 

I hope this answers some of your questions, feel free to ask more

 

 

Andy

[landscaper81]

Hi Andrew,

Once again thank you for great information. i will have look around and see what is available when i get to WA . I Really am unsure on what to do as i don`t want to leave my money back here in Britain . I will have a deep think about it and will be back in touch with more questions. once again thank you for you kind words and information, its people like yourself that make the big move to OZ that wee bit easier.

 

regards tony

[Guest ausmove]

Hi Andrew,

 

Thanks for sharing the info above :-)

 

 

Hope you can help with a few more questions. I've contributed to a UK pension for a number of years via NI contributions (deducted from my monthly salary).

 

 

I've been in Aus for 3 months & intend to settle here. Do I qualify to transfer the contributions I've paid in the UK to an Aus pension scheme? If so, is there a time limit in which I have to do this? Lastly, it would be very helpful if you could provide an estimate / guidance of fees involved to do this.

 

 

Many thanks!

[Andrew from Vista Financial]

Hi Andrew,

 

Thanks for sharing the info above :-)

 

 

Hope you can help with a few more questions. I've contributed to a UK pension for a number of years via NI contributions (deducted from my monthly salary).

 

 

I've been in Aus for 3 months & intend to settle here. Do I qualify to transfer the contributions I've paid in the UK to an Aus pension scheme? If so, is there a time limit in which I have to do this? Lastly, it would be very helpful if you could provide an estimate / guidance of fees involved to do this.

 

 

Many thanks!

 

 

Hi there.

 

 

So just to clarify, are you referring to your UK State Pension in terms of NI contributions or are you referring to a private pension (i.e Standard Life, Aviva etc) where perhaps you were contracted out and this is what was being paid into the private pension?

 

 

Regards

 

 

Andy

[Guest ausmove]

Hi Andy,

 

That's correct - So just to clarify, are you referring to your UK State Pension in terms of NI contributions

[boganbear]

You cannot transfer your state pension that you pay NI with, only a company or personal pension. I transferred mine but it was a pain in the bum to do so with the pension companies sending everything by post to Australia and not email then they sent the payment by cheque and not electronically so you need to get your act together if you are going to do it because it took almost 6 months from start to finish. It should only take a couple of weeks at most.

[Andrew from Vista Financial]

Hi Andy,

 

That's correct - So just to clarify, are you referring to your UK State Pension in terms of NI contributions

 

 

Hi

 

 

As Boganbear says the UK State Pension cannot be transferred as a fund.

 

Instead the years that you have accrued as qualifying years will be counted towards your UK State Pension benefit and can be paid to people in Australia.

 

The current full UK State Pension qualifying years requirement is 30 for both men and women.

 

If someone has not accrued the 30 years then it will be pro-rated i.e if someone has 15 qualifying years then they will be entitled to 50% of the Basic State Pension.

 

The benefits that have been built up will increase with the cost of living each year up until retirement however once they are in payment at State Pension Age they then remain flat for people living in Australia.

 

It is possible to make voluntary contributions to top up missing years.

 

 

Regards

 

 

Andy

[Guest ausmove]

Many thanks Andy, that's cleared it up for me

[futureaussie]

Hey Dan

 

Why are you still up!!!

 

Yes, there does seem to be some doubt in the material that has been published so far. Initially the reports produced did not seem to mention that the 'UP' time period was remaining the same and it was just the reporting time period that was being changed. However having read the further material produced specifically for QROPS Trustees (I am one with my SMSF) it mentions about the 5 year reporting period causing an 'UP' only.

 

We have written directly to the ATO to get clarification on this point as it is a huge issue (along with other points around 70% income for life etc, I think that this needs to be clearer) but I think that in the meantime airing on the side of caution is the wisest course of action.

 

You are right though and I wonder the same, if it is only the reporting period what will that achieve, I suppose it gives them the ability to keep records of what is going on with QROPS money and allows them to draw some conclusions around whether the same level of abuse is still occuring.

 

Lot of so called QROPS Advisers were completely abusing the system and this is HMRC flexing its muscles.

 

In relation to the future tax changes of course it could change again going forward but I think for people that are using the QROPS system correctly it will not be a real detriment to them, if it means having to follow the UK rules throughout retirement one day then so be it, that in itself will not be a detriment as that's the way it would have been if not transferred albeit a better tax outcome by benefiting from the tax free income environment in retirement in Oz on this money.

 

If it came to the crunch and someone had mixed together their QROPS and the domestic Super and was within 'UP" territory and required access to lumps sums etc then there are ways around this.

 

 

You have a good weekend too.

 

Andy

Did you get clarification from ATO on this?

[Andrew from Vista Financial]

Did you get clarification from ATO on this?

 

 

Hi

 

Yes, we did actually get clarification from HMRC (this has nothing to do with ATO) and I've been meaning to post an update.

 

So it seems that although the reporting period has moved to 10 years the actual breach period still lies at the 5 years as a non-UK tax resident timeline.

 

Upon writing to the ATO firstly from a business stance to clarify and secondly on behalf of a client who was looking to withdraw funds inside the 10 year reporting but outside the 5 non UK tax years the HMRC response (in writing) was that they would not apply an unauthorised charge as it would not breach the rules.

 

Might I add though if someone is in this position then from a due diligence point of view it may be well worth having it in writing from HMRC also.

 

Regards

 

Andy

Edited September 20, 2012 by Andrew from Vista Financial

[Danielle09]

If you have contracted out your NI contributions and these are then managed by a private fund, can these be transferred to Oz, or does the same deal apply that these cannot be transferred and you can contribute further to them to meet the 30 year requirement if you wish to?

 

http://www.hmrc.gov.uk/ni/reducedrate/contractedout.htm

[Andrew from Vista Financial]

Hi Danielle

 

Sorry for the delay, I usually get a notification email when a post is made but do not seem to have had one.

 

To answer your question regarding transferring private pensions where someone has contracted out, these can generally be transferred to Australia if this is something someone wishes to consider.

 

Hope this helps.

 

Andy

[Joker]

Hi Andrew,

 

I am in the process of transferring all my UK funds to a SMSF. One of the biggest issues with the changes to the rules seems to be the apparent restriction on what you can invest your transferred funds in.

As I read the legislation, under the changes, HMRC can hit SMSF's with an unauthorised payment charge if they use their Transfer Fund to invest in residential property. This is despite the fact that Australian SMSF's are allowed to invest in residential property as long as there are no connected parties and everything is at arms-length. To my mind, HMRC are being unreasonable here, but then, that wouldn't be the first time.

Do you think there is any mileage in pursuing this with HMRC on a specific basis (i.e the legislation is primarily aimed at lax regimes like IOM, Jersey and NZ). Australian legislation is much more stringent, so do you think it would be possible to get some kind of dispensation from HMRC. I really want to use some of my transferred fund to invest in property, but don't want to open a can of worms with HMRC - what do you reckon.

 

Thanks

 

Mike

[Andrew from Vista Financial]

Hi Mike

 

HMRC make it clear that UK Pension monies cannot be used for residential property, I have heard of people that have done this but certainly would not recommend it as it could prove to be a very costly mistake.

 

Remember this rule is not just to stop it happening in lax regimes, it cannot be done in the UK either.

 

It is a shame as I think the case for residential property in SMSF's done correctly and as part of a diversified portfolio can be a good strategy although I do not like the way a lot of non-authorised spruikers are diving in which is ultimately for their own gain (that said ASIC are hot on their heels and are taking action where necessary).

 

 

Hope this helps Mike.

[oldun]

Hi Andy,

I am a bit new to this so sorry if I am asking a question out of context.

I am considering applying for a Contributory parent visa and am in the 'research' phase. I would be about 60 when (should?) it be approved and would still be looking to work (I am quite happy to work until normal retirement age). I also currently draw two pensions (ex Royal Navy and a company pension). Total pensions are approximately £18k at this time. Is there an easy answer about what the tax implications would be? Would it be impacted by bringing quite large funds into the country with me (not a fortune by any way, but enough to keep us ticking over)?

Many thanks, cheers.

[Andrew from Vista Financial]

Hi Andy,

I am a bit new to this so sorry if I am asking a question out of context.

I am considering applying for a Contributory parent visa and am in the 'research' phase. I would be about 60 when (should?) it be approved and would still be looking to work (I am quite happy to work until normal retirement age). I also currently draw two pensions (ex Royal Navy and a company pension). Total pensions are approximately £18k at this time. Is there an easy answer about what the tax implications would be? Would it be impacted by bringing quite large funds into the country with me (not a fortune by any way, but enough to keep us ticking over)?

Many thanks, cheers.

 

 

Hi oldun

 

My apologies for the delay this fell through the net.

 

I am not too sure what you are asking me here.

 

I think you want to know what the tax implications will be here in Australia on your UK Pension income is that right?

 

If so, then generally for permanent residents (not exactly sure whether the parent visa is perm or not) UK Pension income is assessed for tax purposes here in Australia regardless of whether you bring the monies to Australia or leave them in the UK. Your Accountant should be informed of all income received and will be able to work out the applicable tax due.

 

I hope this helps you.

 

 

 

Regards

 

Andy