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Fletch

Uk Private pension

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Hi,

I am 55 next year and have a private pension worth approx 80,000 Sterling. I have been told I can withdraw the full amount which I intend to do so, What is the best way to transfer this to Australia and will I be taxed on this in the Uk and Australia 

kind regards 

fletch 

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Hello Fletch

If you do not require the funds (or can perhaps arrange funds from elsewhere if you do for the interim) then you may wish to consider transferring the pension to Australia (from age 55).

The reason I say this is that the tax treatment from an Australian perspective is as follows:

Once a person accesses their UK pension this becomes known as a foreign super lump sum benefit payment in the eyes of the Australian Tax Office (ATO), this means that an assessment will be made on the lump sum to consider the growth that has occurred on it, for defined contribution schemes this is done by considering the value of the scheme on the date of Australian Residence against the value of the scheme on the date of access. This growth known as Applicable Fund Earnings is then assessed at the persons marginal tax rate.

As a crude general example of this, the pension was worth £50,000 at date of residence and on the day the lump sum is accessed the scheme is worth £80,000 and there have been no contributions to the scheme within these dates.

This is therefore growth of £30,000 and based on today's exchange rate ($1.73) that's an assessable amount $51,900.

This amount is added to a person's marginal tax rate and taxed accordingly, so for a person with an MTR of 39% (once this amount has been added) then this is tax of around $20,241.

If this scheme is transferred to an Australian (QROPS) scheme (allowable from age 55) then that tax can usually be mitigated to 15% so around $7,785 so a substantial saving (potentially depending on individual circumstances). Withdrawals from age 60 from Super are tax free in Australia.

The downside of a transfer is that the monies become preserved under Australia rules and this means it's likely access will have to be deferred.

Also there are some UK pension policy implications to consider.

Essentially to access the full amount the way it is now done is that a lump sum of up to 25% is allowable known as a pension commencement lump sum and then the rest will go into what is termed drawdown. The lump sum is UK tax free however the remaining amount left in drawdown on withdrawal is recognised as income (even though effectively a full withdrawal of the remaining 75% is allowable in one go).

The UK work on a PAYE system and so when the remaining 75% is withdrawn tax is deducted under that system. You may be able to arrange having that income paid gross if a tax resident of Australia as Australia typically have taxing rights on UK pension income under the DTA but would need to complete a HMRC form for this to occur, it used to be form FD2 but I'm not sure if this has changed now, the ATO also need to complete a section too I understand.

Given that the remaining amount is then classified as income the ATO may then wish to look at taxing this accordingly even if it is being received as a lump sum as technically it is income and particularly if you have completed the above form (FD2?) requesting that the income is taxed in Australia.

You may wish to explore these implications further prior to withdrawal (if you decide this is what you would prefer) and thus may wish to consider seeking a private ruling from the ATO in the first instance to ascertain their view on your situation.

Regards

Andy

 

Edited by Andrew from Vista Financial

Financial Adviser (FPA Member AFP ®) Specialising in UK Expat Advice and Pension Transfers / AR-322874 /AFSL-234951

Accredited Mortgage Adviser (MFAA Member)

Director  - Vista Financial Services – www.vistafs.com.au 08 8381 7177

Vista Financial Knowledge Centre: www.vista.financialknowledgecentre.com.au  

 

Please note that my advice is general advice only and professional financial advice should be sought for your own personal situation.

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Hi Andrew

Thanks for this info.  I have a defined benefit pension with a UK Bank.  I am 55 and considering taking a Pension commencement tax free lump sum and then receive a lower pension( some stage between now and 60).  I understand the pension I would draw is taxable as foreign income in Australia, however my question is will I have to pay tax on the TAX Free pension commencement lump sum here too.  Is the applicable funds earning aspect only for full lump sums( apologies if I am a little confused) or would that apply if I simply drew my pension each month?  FYI, I am a duel citizen and have been a permanent resident for 5 years.

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Hello LM

Yes any foreign superannuation lump sum is assessed for tax here in Australia regardless of it being tax-free in the UK.

I understand that if the lump sum is taken with the remaining pot subsequently providing an income for life then it is just the lump sum amount that is assessed as opposed to the whole pot.

The assessment is based on the growth of that lump sum typically between date of residence and receipt of lump sum.

Have you considered a transfer of the pension to an Australia QROPS Super?

Withdrawals from Australian Super tend to be more tax efficient and offer more flexibility.

Regards

Andy


Financial Adviser (FPA Member AFP ®) Specialising in UK Expat Advice and Pension Transfers / AR-322874 /AFSL-234951

Accredited Mortgage Adviser (MFAA Member)

Director  - Vista Financial Services – www.vistafs.com.au 08 8381 7177

Vista Financial Knowledge Centre: www.vista.financialknowledgecentre.com.au  

 

Please note that my advice is general advice only and professional financial advice should be sought for your own personal situation.

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Hi Andrew

 

Thank you for this information.  I think the only consideration I had was that I am not completely sure we will never return to the UK and as such my understanding is that

We could be then hit with a hefty tax bill from the HMRC if we became UK residents again.  Also as a final salary pension guarantees a number of things such as Life assurance, widows pension etc as such it may outweigh the value of benefit I could convert it to.  The costs of transferring and administering etc I understand are also quite high.  I am Happy to discuss direct with you if you think I am missing a big opportunity.

Cheers

LM

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It sounds as though you'd be wise to pay Andrew for a professional consultation.

However if you're not 100% sure you'll never return to the UK, I'd say your best bet would be not to transfer anything, because the cost and complications to transfer it all back would be horrendous.   

There's no rule that says you can't collect a regular pension from the UK - yes, you'll have to declare it as income, but that's all it is:  income, just like your salary used to be. It's not taxed at a higher rate, or anything - whereas your lump sum would be.  Of course, you'll be at the mercy of exchange rates - but that can work both ways :).     

I know it's tempting to claim that lump sum as soon as you're able - but if you don't really, really need it, could you leave it and just take the pension?  


Scot by birth, emigrated 1985 | Aussie husband applied UK spouse visa Jan 2015, granted March 2015, moved to UK May 2015 | Returned to Oz June 2016

"The stranger who comes home does not make himself at home but makes home itself strange." -- Rainer Maria Rilke

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2 hours ago, Lord Mayor said:

Hi Andrew

 

Thank you for this information.  I think the only consideration I had was that I am not completely sure we will never return to the UK and as such my understanding is that

We could be then hit with a hefty tax bill from the HMRC if we became UK residents again.  Also as a final salary pension guarantees a number of things such as Life assurance, widows pension etc as such it may outweigh the value of benefit I could convert it to.  The costs of transferring and administering etc I understand are also quite high.  I am Happy to discuss direct with you if you think I am missing a big opportunity.

Cheers

LM

 

Hello again LM

Yes you are correct in that if a UK transfer takes place (from March 2017) to an Australian QROPS and that person ceases to become an Australian Resident (within 5 full UK tax years from date of transfer) then the person could be liable to the 25% Overseas Tax Charge: https://www.gov.uk/government/publications/qualifying-recognised-overseas-pension-schemes-charge-on-transfers/the-overseas-transfer-charge-guidance#eel-chapt2

Therefore it of course means that an Australian Resident considering a transfer should be very confident that they will remain an Australian Resident for that period of time.

That said.....depending on the age of a person that may not be such an issue because if a person has transferred a UK pension to Australia and decides to return to the UK it may be possible to withdraw all of the money from the QROPS (tax-free) before moving back.

Obviously this may have implications as then the lump sum of money would have investment income/interest generated and become assessable for tax, this therefore may or may not be a higher tax rate than it would otherwise have been as pension income.

So it seems in your situation this is a big consideration.

Moving on to your next comments.

Yes absolutely there are guarantees with final salary schemes that could be lost as you will be giving these up with your current provider however they could well be bought back in some form, I will cover this later.

It used to be that a move out of a final salary scheme was a complete no go however over the last few years this is less so with transfer values at a point where for some members it has to be given serious contemplation (for example a lady I spoke with 2 weeks ago whose value this year was £784,000 up £200,000 from last year and £30,000 annual pension, age 49).

Also in relation to my point above about the loss of guarantees (an income for life and widows pension), Australia also offer Annuities and the rates here are higher than the UK so someone could purchase at retirement a lifetime income with a Spouse benefit added as an option (which will be tax-free in Australia). Again this may lead to a better or similar outcome.

However most Australian (and UK) retirees nowadays do not use their pension or super monies at retirement to purchase an Annuity as prefer to have a lump sum for drawdown and available for withdrawals as and when they wish. I’m not suggesting that this is the right or wrong thing but purely giving stats.

A UK Defined Benefit Scheme is simply an Annuity however the income is assessable for tax and there will be continuous exchange rate fluctuations to contend with (if resident here of course).

As said earlier Transfer values for final salary schemes are currently very high historically to the point where the investment return required to match the pension benefits are generally very realistic (even after factoring in fees). Also to note that the balance of a person’s Super is never lost as is paid out on the members death (DB Spouse pensions are typically 50% sometime up to 66%) again this may or may not be a better outcome however if a person’s Spouse pre-deceases them typically that’s the end of a defined benefit scheme on the members death whereas the pot of money in Super would still be paid to the members beneficiary/estate.

So you can see there is definitely not an absolute right or wrong on this, so much comes down to individual situation and goals and objectives.

It may also be in some cases still appropriate to move out of a DB Scheme to a DC Scheme (SIPP) without the tax and exchange rate issues ie if someone were in the UK or moving back to the UK (amongst other things IF the value was right).

My suggestion to you would be in the very first instance to request a Cash Equivalent Transfer Value (CETV) this then may allow you in your own mind to either forgot the whole thing OR to explore further.

If you wish to explore further when they come through then happy to chat through the process of what is involved.

Hope this helps.

Andy


Financial Adviser (FPA Member AFP ®) Specialising in UK Expat Advice and Pension Transfers / AR-322874 /AFSL-234951

Accredited Mortgage Adviser (MFAA Member)

Director  - Vista Financial Services – www.vistafs.com.au 08 8381 7177

Vista Financial Knowledge Centre: www.vista.financialknowledgecentre.com.au  

 

Please note that my advice is general advice only and professional financial advice should be sought for your own personal situation.

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Hi, 

I am over 55 years old and this year I withdrew my small uk pension pot of £17,000 and received most of my uk tax back. 

As I understand it I can either declare the growth of the fund since moving to oz on my 2017 tax return - approx £7,000 and pay tax at my marginal rate of 32.5%

or I can make a contribution of the full amount of £17000 into my Australia super fund as a concessional contribution before 30 June and be taxed at 15%.

i am thinking about both options, has anyone dealt with before?

Kind regards, Karen

 

 

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Hi Karen

Sorry for not replying sooner, I’ll answer you on Monday. 

Thanks

Andy


Financial Adviser (FPA Member AFP ®) Specialising in UK Expat Advice and Pension Transfers / AR-322874 /AFSL-234951

Accredited Mortgage Adviser (MFAA Member)

Director  - Vista Financial Services – www.vistafs.com.au 08 8381 7177

Vista Financial Knowledge Centre: www.vista.financialknowledgecentre.com.au  

 

Please note that my advice is general advice only and professional financial advice should be sought for your own personal situation.

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On ‎31‎/‎05‎/‎2018 at 23:28, Karen33 said:

Hi, 

I am over 55 years old and this year I withdrew my small uk pension pot of £17,000 and received most of my uk tax back. 

As I understand it I can either declare the growth of the fund since moving to oz on my 2017 tax return - approx £7,000 and pay tax at my marginal rate of 32.5%

or I can make a contribution of the full amount of £17000 into my Australia super fund as a concessional contribution before 30 June and be taxed at 15%.

i am thinking about both options, has anyone dealt with before?

Kind regards, Karen

 

 

Hi Karen

It doesn't quite work like this I'm afraid.

I know that the ATO website makes it sound like you can contribute an amount to super from a foreign super lump sum benefit payment however I understand that this is only the case if it was a transfer from a UK pension directly to an Australian Super Fund. The ATO actually call the two things the same ie foreign super benefit payment.

Therefore a contribution to Super for tax deduction purposes has to be done as a contribution and fall in line with the contribution caps, currently the concessional contribution cap is $25,000 (this amount includes employer (salary sacrifice) contributions).

The other thing to note is that whilst you have effectively taken a lump sum form your Pension, technically the UK class 75% of that as income and not a lump sum, therefore there could be two types of assessment made by the ATO being a foreign super lump sum benefit payment (ie taxed on the growth of the fund) and an income payment.

Kind regards

Andy

 

 

 

 


Financial Adviser (FPA Member AFP ®) Specialising in UK Expat Advice and Pension Transfers / AR-322874 /AFSL-234951

Accredited Mortgage Adviser (MFAA Member)

Director  - Vista Financial Services – www.vistafs.com.au 08 8381 7177

Vista Financial Knowledge Centre: www.vista.financialknowledgecentre.com.au  

 

Please note that my advice is general advice only and professional financial advice should be sought for your own personal situation.

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Hi Andrew, thanks very much for your reply.

It is worrying that the ATO may treat 75% of my lump sum as income.

I can only hope that this does not happen to me. 

Kind regards, Karen

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No problem Karen.

Without providing advice (as clearly I am not in a position to do so as do not have a full understanding of your financial situation) it may be worthwhile you exploring maximising tax deductible contributions to Super.

From 1 July this year a person does not have to be self-employed to be able to claim a tax deduction on a contribution they make voluntarily to Super.

See here: http://www.vista.financialknowledgecentre.com.au/kcarticles.php?id=1321  

Taken from article.

Tax deductions for personal superannuation contributions
The 10% maximum earnings as employee test for claiming tax deductions for personal superannuation contributions has been removed. This means being an employee will no longer prevent you claiming a tax deduction for your personal superannuation contributions. Personal contributions may be made until 28 days following the month you turn 75, however from age 65 you must first have worked at least 40 hours during 30 consecutive days of the current financial year.

Hope this helps.

Andy


Financial Adviser (FPA Member AFP ®) Specialising in UK Expat Advice and Pension Transfers / AR-322874 /AFSL-234951

Accredited Mortgage Adviser (MFAA Member)

Director  - Vista Financial Services – www.vistafs.com.au 08 8381 7177

Vista Financial Knowledge Centre: www.vista.financialknowledgecentre.com.au  

 

Please note that my advice is general advice only and professional financial advice should be sought for your own personal situation.

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