Pension Payable from the UK

[UKAdviser]

Hi, I am in the UK and have a problem with a pension for one of the members of the pension scheme I deal with who is resident in Australia and I am struggling to help him. I am sure that this will not be a new problem and would appreciate your help.

 

This individual became resident in Australia nearly 30 years ago. At this point he had a final salary scheme with a promise by his employer to pay him a pension at his retirement date.

 

In 1992 the member transferred roughly half of this pension to an Australian Superannuation Scheme as it was not possible to transfer Guaranteed Minimum Pension (GMP) to Australia at that time so that portion of their benefits had to remain in the UK.

 

Now the member has reached his retirement date the pension in relation to the Guaranteed Minimum Penion has come into payment. The Australian Tax Authorities are asking:

 

1- How much was contributed to the pension scheme.

2- The value of the pension scheme at the date the member became resident in Australia.

 

Now in answer to 1, as the pension was simply a promise there were no contributions paid to the scheme by the individual. According to the records of the insurer who administered the scheme at the time, there were no contributions being paid at all even from the employer in his period of employment (which was fairly common in those days).

 

For 2, the value of the pension at the date the member became resident in Australia was an amount per annum.

 

From reading a little online it seems to suggest that there might be a tax payable (15%?) on any pension fund growth in the UK between the date the member became resident in Australia to his date of retirement. As there was no fund, there is nothing to tax.

 

The Australian Authorites are somehow coming up with a tax amount. I have no idea how this has been calculated and am more worried that it should not have been calculated at all? Does anyone have any expecience of this sort of situation?

 

As an additional point as it might be raised, as I explained above, a portion of this was subsequently transferred out in 1992. This was calculated using a Cash Equivalent Transfer Value (CETV) on only that part of the benefit at that time. A CETV is roughtly the amount of money that, if invested at the date of calculation by the recieving scheme should be sufficient to provide the pension promised to the member by the ceding scheme. There was no CETV done on the GMP remaining in the UK. It also became apparent that in many cases, the CETV amounts were later found to be insufficient (see this link http://www.pensionsadvisoryservice.org.uk/dealing-with-complaints/pension-mis-selling ) so this is no guide to the pensions actual cash value in 1992.

 

I would really appreciate some help on this as want to ensure that any tax is applied fairly. Is there a method of valuing final salary benefits for the Australian Taxation system? What information should I be providing the member to ensure that he is assessed correctly?

 

If there is any other information you need from me in order to do this please ask. Or if you can suggest who I need to contact (or indeed refer me to some online information) it will be very helpful.

 

Many thanks

 

 

 

Scotty

[Rupert]

I am baffled. Why are the Australian authorities even involved? Surely he just starts to receive his pension payments now and pay tax on the income as appropriate.

[UKAdviser]

Hi Rupert,

 

Thanks for replying. I am baffled too.

 

I have got some more information on this in the last day or so though. It seems that the Australian Tax Office (ATO) are clamping down on what are considered 'Overseas Investments'. I understand that normally, a tax will be payable starting at 15% on any fund growth between the date the individual became resident in Australia and their date of retirement.

 

As this individuals pension was a promise of a pension at State Pension Age there was no fund growth and they had no money invested. The scheme had money but only in order to try to pay this promise but there was no money that was earmarked for any particular member.

 

The Australian tax authorities are coming up with a tax figure from somewhere. I have no idea how they are calculating this. I think that the matter has been confused as there was a lump sum paid in connection to the pension (due to a change in the way the benefits were treated - normally there would be no cash sum with GMP). I understand that the lump sum will need to be taxed under Australian legislation but the Tax Office still seems to be coming up with investment growth on a non existent fund and is apparently very high.

 

I was hoping that this would be an area that has been covered before because there will have been many GMP benefits that could not be transferred to Australia until the legislation changed a few years ago.

 

It might be that the Tax Office supply a calculation and we can advise if it is right or wrong and maybe understand what figures or items they may be misunderstanding.

 

If anyone does have experience of this I would greatly appreciate your assistance.

 

Thanks again,

 

 

 

Scotty