Annus Horribilis for UK Pension Transfers

[Andrew from Vista Financial]

Well it seems that between HMRC and the Liberal/National Coalition they really do not want UK expats transferring their pensions from the UK to Australia.

 

Part one of this story was brought about by changes out of the UK effective March and 6 April 2015 as follows:

 

 

 

 

 

• UK Pensions that fell into the category of UK government un-funded defined benefit schemes (these are schemes such as the NHS and the Police Pensions) could no longer be transferred to schemes that offer flexible benefits - Ban on UK pension transfers
  

 

 

 

 

Typically in Australia all of the QROPS schemes available at that time offered flexible benefits thus resulting in people with these pensions not being able to transfer them to Australia.

 

 

 

 

 

• The UK introduction of the ‘Pensions Age Test’ which essentially resulted in Australia losing its QROPS status overnight (this only became apparent on the release of the 1 July 2015 ROPS list - Australia lose QROPS status)
  

 

 

 

 

Since then however there have been avenues for certain people to transfer pensions to Australia - Pension Transfers for over 55s

 

Since around October last year limited direct transfers to Australia have been taking place for people who are over age 55 and who establish a SMSF and have it QROPS registered.

 

However Part two of this saga was brought about at the Australian budget last night when Treasurer Scott Morrison announced effective 7.30pm that evening.

 

 

 

 

 

• The current non-concessional contributions (NCC) limits (NCCs are in the main what UK transfers are classified as) would be removed and replaced with a lifetime non-concessional contribution (NCC) cap of $500,000.
  

 

 

 

 

Further all NCCs made on or after 1 July 2007 will count towards this lifetime cap (in other words contributions made retrospectively will be included towards this new cap).

 

Whilst it is too early to be able to strip back these proposals and be able to understand all of the implications that exist it does certainly look like it will limit further the ability for people to make a transfer directly to Australia from their UK pension without possibly incurring a substantial UK or Australian tax penalty.

 

So the criteria currently for anyone considering a direct UK pension transfer to Australia is:

 

 

 

 

 

• Be over age 55;
  
• Have established or will establish an Australian SMSF (that restricts membership to age 55s+)
  
• Obtain QROPS status for the SMSF
  
• Transfer in no more than $500,000 as a Non-Concessional Contribution (including any NCCs made since 1 July 2007).
  

 

 

 

 

 

Please note though that having more than $500,000 does not automatically mean that a transfer cannot happen there is more to it than this and it could still be possible to transfer directly to Australia (if over age 55) as it will also depend on your length of residency.

 

This area has always been extremely specialised and complex but now more so than ever before.

 

Regards

 

Andy

[Alan Collett]

Yes, I anticipate that many will look to places such as NZ for their superannuation arrangements and transfers ex-UK where the transfer value exceeds very low ceiling.

 

We live in interesting times ...

 

Best regards.

[northshorepom]

Yes, I anticipate that many will look to places such as NZ for their superannuation arrangements and transfers ex-UK where the transfer value exceeds very low ceiling.

 

We live in interesting times ...

 

Best regards.

 

Interesting

 

Can you explain?

 

I have been exploring avenues to see what we can do with my wife's old private pension, which is sitting in the UK doing very little except attracting fees. It's not a very big pot but we'd both rather it was here in A$ so as and when she may do bits of work and want to contribute to it, she can

 

We had pretty much resigned ourselves to leaving it in the UK for the few years until she is 55 and then trying to bring it over. But if it's possible to bring one over to a NZ$ fund that might be an alternative option? I hadn't heard of, or considered it

 

Thanks. I appreciate any advice you give here is limited and we will need to get proper paid for advice from someone, just trying to establish if it's even worth bothering with that

[Mike Bennett]

Andrew,

 

Disappointing outcome from the budget as I was very close to transferring my pensions across from the UK, as I am over 55 and prepared to set up a QROP SMSF this should have been possible. As I have several pensions, two of which are defined benefits with a transfer value each in excess of the $500k new limit for NCC's this is likely to now be an issue for me.

 

What would the tax liability for contributions made to a QROP SMSF in excess of $500k?

[Andrew from Vista Financial]

Andrew,

 

Disappointing outcome from the budget as I was very close to transferring my pensions across from the UK, as I am over 55 and prepared to set up a QROP SMSF this should have been possible. As I have several pensions, two of which are defined benefits with a transfer value each in excess of the $500k new limit for NCC's this is likely to now be an issue for me.

 

What would the tax liability for contributions made to a QROP SMSF in excess of $500k?

 

 

Hello Mike

 

 

Close to 50% https://www.ato.gov.au/super/self-managed-super-funds/contributions-and-rollovers/contribution-caps/ so you really wouldn't want to go there!

 

There still may be several strategies available to bring the monies to Australia in a tax efficient manner however each strategy would need to be explored very carefully as has potential ATO and HMRC implications and as always your personal circumstances would pay a big part.

 

Regards

 

Andy

[Gbye grey sky]

Feels like we are walking through a minefield here. As I understand it, in general, SMSFs are not really a cost effective option for smaller pension pots (ie. under $250,000) so an SMSF may only be viable for most if they happen to have a UK private pension worth between $250k and $500k at the time they hit 55.

 

Fortunately both mine and my wife's pensions are comfortably within that though my wife will not reach 55 for two more years.

[Mike Bennett]

Hello Mike

 

 

Close to 50% https://www.ato.gov.au/super/self-managed-super-funds/contributions-and-rollovers/contribution-caps/ so you really wouldn't want to go there!

 

There still may be several strategies available to bring the monies to Australia in a tax efficient manner however each strategy would need to be explored very carefully as has potential ATO and HMRC implications and as always your personal circumstances would pay a big part.

 

Regards

 

Andy

 

Andy,

Ouch!, Certainly not going there. Should probably have brought across last year when the exchange rate was above 2, was not prepared to transfer at 1.5. Also liked the protection of the DB scheme with regards to it being inflation protected but do not believe that is as much of an issue going forward.

My plan was to wait until Brexit vote which would hopefully have stabilised/ improved the exchange rate then transfer my DB schemes to SIPP's in the UK and move them across to a SMSF based on the previous allowance of $180K allowance and 3 years allowance at once. I would be happy to leave one scheme in the UK as tax threshold in AU would be reduced anyway. I would be interested in alternatives you may have.

 

Thanks,

 

Mike

[Ken]

Andy,

Ouch!, Certainly not going there. Should probably have brought across last year when the exchange rate was above 2, was not prepared to transfer at 1.5. Also liked the protection of the DB scheme with regards to it being inflation protected but do not believe that is as much of an issue going forward.

My plan was to wait until Brexit vote which would hopefully have stabilised/ improved the exchange rate then transfer my DB schemes to SIPP's in the UK and move them across to a SMSF based on the previous allowance of $180K allowance and 3 years allowance at once. I would be happy to leave one scheme in the UK as tax threshold in AU would be reduced anyway. I would be interested in alternatives you may have.

 

Thanks,

 

Mike

 

The lifetime limit won't be introduced until 1 July 2017. You still have time to use the old 3 x $180,000 limit before then and anything you transfer before 1 July 2017 won't count towards the new limit meaning you'll be able to transfer another $500,000 after 1 July 2017. This of course only works if you're already over 55 otherwise HMRC will hammer you.

[Wonderer]

I transferred my UK pensions in 2014 and now have a balance over $500k with my lifetime allowance, sadly, well below $1.6 million. I have two questions which I would like views on please. (i) Is the full amount in excess of $500k now taxable or is it just the income that will be derived from this amount? After all NCC is deemed to be made from after-tax contributions so it seems that the same amount will be taxed twice; and (ii) what will HMRC's position be on this "forced" withdrawel?

 

Thanks in advance.

 

Ian

[Wonderer]

PS I turn 60 in June and will start drawing a pension.

[Andrew from Vista Financial]

The lifetime limit won't be introduced until 1 July 2017. You still have time to use the old 3 x $180,000 limit before then and anything you transfer before 1 July 2017 won't count towards the new limit meaning you'll be able to transfer another $500,000 after 1 July 2017. This of course only works if you're already over 55 otherwise HMRC will hammer you.

 

Unfortunately Ken the lifetime limit proposed date was 7.30pm on Budget night (03/05/2016) and includes all contribution from 1 July 2007, very harsh.

 

Andy,

Ouch!, Certainly not going there. Should probably have brought across last year when the exchange rate was above 2, was not prepared to transfer at 1.5. Also liked the protection of the DB scheme with regards to it being inflation protected but do not believe that is as much of an issue going forward.

My plan was to wait until Brexit vote which would hopefully have stabilised/ improved the exchange rate then transfer my DB schemes to SIPP's in the UK and move them across to a SMSF based on the previous allowance of $180K allowance and 3 years allowance at once. I would be happy to leave one scheme in the UK as tax threshold in AU would be reduced anyway. I would be interested in alternatives you may have.

 

Thanks,

 

Mike

 

Sure Mike, if you can drop me a PM or email we can perhaps discuss offline.

 

Regards

 

Andy

[Andrew from Vista Financial]

I transferred my UK pensions in 2014 and now have a balance over $500k with my lifetime allowance, sadly, well below $1.6 million. I have two questions which I would like views on please. (i) Is the full amount in excess of $500k now taxable or is it just the income that will be derived from this amount? After all NCC is deemed to be made from after-tax contributions so it seems that the same amount will be taxed twice; and (ii) what will HMRC's position be on this "forced" withdrawel?

 

Thanks in advance.

 

 

Ian

 

PS I turn 60 in June and will start drawing a pension.

 

Hi Ian

 

I suspect you have nothing to be concerned about.

 

Although NCCs made from 1 Jul 2007 are retrospectively counted towards the lifetime limit I understand that there will be no action taken for retrospectively breaching the $500,000.

 

Andy

[Parley]

Would you agree that any changes are subject to the budget items being passed into legislation and if Labor win the election some of these measures may not be implemented.

 

I personally would not be rushing to make any changes given the uncertainty of whether these measures may be adopted

[Andrew from Vista Financial]

Yes agreed, the changes are only proposed at this stage (as outlined above) so care should be taken before implementing anything until they are passed.

 

That said IF they are passed then for some people there could be unintended consequences as the lifetime limit proposed change takes consideration of contributions made retrospectively, there are already cases coming to light whereby contributions initiated before budget night but not received until post budget have been received by people that have already contributed more than $500,000 in previous years.

 

One can only hope that the ATO act sensibly in these cases.

 

Regards

 

Andy

[Ken]

Unfortunately Ken the lifetime limit proposed date was 7.30pm on Budget night (03/05/2016) and includes all contribution from 1 July 2007, very harsh.

 

The guidance notes I read said all contributions from 1 July 2017 hence my confusion - it that must have been a misprint as all other sources agree it is 1 July 2007.

[Wonderer]

Thanks Andy, that is a relief. I will now hold my breath...

[Andrew from Vista Financial]

Good news!!

 

http://www.pomsinoz.com/forum/money-finance/251523-breaking-govt-scraps-500-000-lifetime-super-cap.html