Questions re. Uk Pension Paid Into Aus Account

[Lazy Cow 319]

Hi,

It’s been a while - life, hey, but I hope you’re all well.

Turns out I need to claim my UK pension from Royal Mail, and I don’t know what to do. The guys at Vista Finance were absolutely wonderful and told me that given how little is in the pension, i would lose more than I’d gain by formally transferring the pension.

I’m a Aus citizen with a small lump sum in England and an annual pension of something like a couple of thousand £pa.

If I give the pension people my Australian bank account details, will the bank automatically convert it and if so, will there be charges or just a slightly lower conversion rate?

With the lump sum, I obviously want to lose as little as possible as there’s not much TO lose !

I know I will pay tax on the money, and whilst I think that’s fair, again, I’d like to pay as little as possible…would it help if I put the money in my Super?

I’ve tried asking the bank but whilst the person in International was lovely, when I asked about charges, she told me she “didn’t think so” . We went to a financial advisor, (not Vista as it was a different issue) but they didn’t help at all. I’m hoping that someone on here has actual experience that can help guide me .

TIA LC

 

Edited May 1, 2022 by Lazy Cow
Remove emoji

[rammygirl 2,063]

You need a tax accountant who understands Uk/Aus rules. Rather than an FI. You will need to know the value of the lump sum when you became resident in Aus you will only be taxed on the growth since then. With the annual pension you need to do a form from the ATO who then inform your pension company not to deduct tax at source as you will declare it in Aus. I have elected to have my local gov pension paid into my Uk account but they do offer a decent transfer service via western union with reasonable rates.  Royal Mail should contact you with all the details if they have your address, mind snail mail is slow so I rang and asked for e mail, there may also be an on line portal.  The website for mine is so old local gov I can’t access it easily from my Mac I have to download a different browser etc etc!

 

[Marisawright 10,066]

Do you still have a British bank account?   If so, it would be wise to hang onto it anyway, as you'll never be able to get another one.  

The advantage is that you can give the Royal Mail your British bank details, and they can pay everything in there. Notice, you'll still have to declare the money on your Australian tax return, as if you actually received the money in Australia.  

Then open an account with a company like Wise

https://wise.com/au/

You can use Wise to transfer the money from your British bank to your Australian bank, and then your Australian bank won't charge you any  fees. 

18 minutes ago, Lazy Cow said:

I’ve tried asking the bank but whilst the person in International was lovely, when I asked about charges, she told me she “didn’t think so” .

Either she's an airhead or she's misunderstood your question.   There are always charges when you convert from one currency to another.  Sometimes they're a separate charge, or sometimes it's hidden in their conversion rate.  Your pension wouldn't be treated any differently to any other international transfers.

Edited May 1, 2022 by Marisawright

[Marisawright 10,066]

Regarding your super - are you still working?   if so, then yes, it could help to pay the money into your superannuation.  It won't do any harm anyway, so you might as well. 

If you're not still working, then you can't.

To note, if the pension is very small, it can be handy to leave it in the British bank account.  

I had a small inheritance that I kept in my UK account for several years.  I used it to buy Christmas and birthday presents for my family in the UK (I ordered from UK online stores).  It was also handy when I went back for a visit. 

Edited May 1, 2022 by Marisawright

[Lazy Cow 319]

Thank you so much @rammygirl your reply is so informative and has really given me something solid to work on. 
Thanks again, LC

[Marisawright 10,066]

2 minutes ago, Lazy Cow said:

Thank you so much @rammygirl your reply is so informative 

Normally I'd agree with @rammygirl but in this case, I'm not sure I agree with her first sentence. You don't need a heavyweight tax accountant if the value is very small.  You could try @Ken who posts on these forums. 

[Lazy Cow 319]

Thank you so much @Marisawright 

Unfortunately, and long story short,  my feral sibling led to the closure of my bank account (note to anyone, do not trust even those you love with your money ) so unless he can sort that out for me, I do not have a UK bank account.

re. Super, I am still working so that sounds good, thank you  

Yeah, I’m not sure a tax accountant would do much more than laugh at my lump sum. 

As for the bank peep, I think she might’ve been thrown by my adding that it was money from a pension . Whatever, I was happy she’d been honest rather than  giving me the answer I wanted to hear .

Thanks again, LC

Edited May 1, 2022 by Lazy Cow
Additional info.

[rammygirl 2,063]

Yes not necessarily a dual qualified accountant (although I think Ken is) but one that understands how to claim appropriate deductions for Uk pensions.

most large companies like Royal Mail have good deals on foreign exchange as they have lots of overseas retirees. The rates are competitive the only downside is you can’t choose when to transfer it to take advantage of rates.  When I can claim my Uk age pension in a few years I will probably elect to have them pay direct to Aus as rates are very good and it will be nice to have a regular income by then.

 

[Marisawright 10,066]

39 minutes ago, Lazy Cow said:

 

re. Super, I am still working so that sounds good, thank you  

If you are still working, then ask your Superannuation provider if the money could be paid directly to your super.  If your super fund has a BSB and account number, it could be done and would save you hassle (and possibly tax).

[Marisawright 10,066]

15 minutes ago, rammygirl said:

most large companies like Royal Mail have good deals on foreign exchange as they have lots of overseas retirees.

But do they convert to Australian dollars before they send the money?   That's nice of them. I'd think most companies would pay the money to all their retirees in GB pounds and then leave it to the receiver's bank to convert it, and then the receiver's bank will charge their normal rates.

Edited May 1, 2022 by Marisawright

[rammygirl 2,063]

1 hour ago, Marisawright said:

But do they convert to Australian dollars before they send the money?   That's nice of them. I'd think most companies would pay the money to all their retirees in GB pounds and then leave it to the receiver's bank to convert it, and then the receiver's bank will charge their normal rates.

My pension fund paid in local currency into foreign bank so yes. Same with Gov pension. I think my pension fund use Western Union, they have a bulk deal of some sort. I guess small firms would but local government and certainly Royal Mail and large corporations will.

Edited May 1, 2022 by rammygirl

[RandL 69]

8 hours ago, Lazy Cow said:

Unfortunately, and long story short,  my feral sibling led to the closure of my bank account (note to anyone, do not trust even those you love with your money ) so unless he can sort that out for me, I do not have a UK bank account.

you can still set up a Wise account  in Australia , it will give you a UK currency account as well as an Australian currency account .

So you will have a UK sort code and account number you can  give to anybody paying you in £.

you can get a debit card with it and spend the funds in OZ with an automated conversion £-->AU$

I wouldn't use it to hold large amounts of money ( as they starting to charge you for it and they are not a bank so they don't come under the government guarantee  ) but it's great to hold  small recurring payments.

Edited May 1, 2022 by RandL

[Lazy Cow 319]

Thank you very much @RandL

It sounds like it would be perfect for my monthly / quarterly payment so I will investigate further (esp. the government guarantee, because I have no idea what that might be!) .

Thanks again, LC

[Lazy Cow 319]

Just to explain…I’m only just figuring out the ‘reaction emojis’ so if you’re wondering why I've selected mainly trophies, that’s why!

I really appreciate the advice you’ve given me, thank you all 🥳

[Marisawright 10,066]

1 hour ago, Lazy Cow said:

Thank you very much @RandL

It sounds like it would be perfect for my monthly / quarterly payment so I will investigate further (esp. the government guarantee, because I have no idea what that might be!) .

Thanks again, LC

However just to emphasise, if your superannuation company can accept the payments (and I'm 99% sure they will) then that is likely to be a better option, as it's more "set and forget".  Also it will reduce your tax.

The bank guarantee - deposits in Australian banks are guaranteed by the Australian government (i.e. you won't lose your money even if the bank fails), up to $250,000.  Wise isn't covered by that guarantee so if Wise goes bankrupt, you'll lose any money you have deposited with them.

Edited May 1, 2022 by Marisawright

[Ken 1,527]

6 hours ago, Marisawright said:

However just to emphasise, if your superannuation company can accept the payments (and I'm 99% sure they will) then that is likely to be a better option, as it's more "set and forget".  Also it will reduce your tax.

The bank guarantee - deposits in Australian banks are guaranteed by the Australian government (i.e. you won't lose your money even if the bank fails), up to $250,000.  Wise isn't covered by that guarantee so if Wise goes bankrupt, you'll lose any money you have deposited with them.

I think you're overstating the risk of what happens if Wise goes bankrupt. There's a risk you might lose some of the money you have deposited with them and there'll certainly be a long delay before you get any of your money back - but it's far from the case that you'd lose all of it. 

The reason you have to pay a fee on large balances in Australia is because Wise is regulated (as a purchased payment facility not as a bank) and the Australian regulator requires Wise to deposit funds exceeding the customer balances (funds which remain available to reimburse depositors if Wise goes bankrupt) and this incurs a cost.

For anyone wondering what the amounts you can hold with Wise before paying a fee in Australia it's: AUD 23,000 + GBP 13,000 + EUR 15,000 + USD 18,000 + around 50 other currencies each with it's own limit. Each limit is separate and billed separately and you can go over any of the limits for up to 3 days before being charged.

 

Edited May 2, 2022 by Ken

[Ken 1,527]

On 01/05/2022 at 11:27, rammygirl said:

You need a tax accountant who understands Uk/Aus rules. Rather than an FI. You will need to know the value of the lump sum when you became resident in Aus you will only be taxed on the growth since then. With the annual pension you need to do a form from the ATO who then inform your pension company not to deduct tax at source as you will declare it in Aus. I have elected to have my local gov pension paid into my Uk account but they do offer a decent transfer service via western union with reasonable rates.  Royal Mail should contact you with all the details if they have your address, mind snail mail is slow so I rang and asked for e mail, there may also be an on line portal.  The website for mine is so old local gov I can’t access it easily from my Mac I have to download a different browser etc etc!

 

Just to explain the difference between a lump sum and a pension from the ATO perspective is that the lump sum is only taxable on the amount it has grown since you moved to Australia. The entire value of your pension fund on the date you moved (or later became classed as a permanent resident for tax purposes) is therefore tax free. It can be difficult to obtain a statement on the date that you moved but an accountant can calculate it using valuations from the closest dates you have either side of your move.

If however you receive a pension, then the entire pension is taxable except for the amounts you paid in to it. This is called the Undeducted Purchase Price (UPP). Growth that occurred before you moved to Australia is therefore taxed under this model. Not only that but only amounts that you paid into the pension count as UPP and not any employer contributions. 

Furthermore you need to obtain a private binding ruling from the ATO to agree what percentage of your pension is the UPP as obviously it varies from individual to individual. If you only have a very small pension and/or aren't paying much tax anyway you may take the view it's not even worth the trouble of claiming a UPP (especially if you lack the evidence that any amounts were deducted from your pay to invest in the pension fund).

This doesn't necessarily mean that receiving your pension fund as a lump sum rather than a pension will mean paying less tax as the size and timing of the lump sum may mean the taxed portion gets taxed in a higher tax bracket whereas a pension you receive after you've stopped working may have little or no tax to pay.

[Ken 1,527]

1 hour ago, Ken said:

Just to explain the difference between a lump sum and a pension from the ATO perspective is that the lump sum is only taxable on the amount it has grown since you moved to Australia. The entire value of your pension fund on the date you moved (or later became classed as a permanent resident for tax purposes) is therefore tax free. It can be difficult to obtain a statement on the date that you moved but an accountant can calculate it using valuations from the closest dates you have either side of your move.

If however you receive a pension, then the entire pension is taxable except for the amounts you paid in to it. This is called the Undeducted Purchase Price (UPP). Growth that occurred before you moved to Australia is therefore taxed under this model. Not only that but only amounts that you paid into the pension count as UPP and not any employer contributions. 

Furthermore you need to obtain a private binding ruling from the ATO to agree what percentage of your pension is the UPP as obviously it varies from individual to individual. If you only have a very small pension and/or aren't paying much tax anyway you may take the view it's not even worth the trouble of claiming a UPP (especially if you lack the evidence that any amounts were deducted from your pay to invest in the pension fund).

This doesn't necessarily mean that receiving your pension fund as a lump sum rather than a pension will mean paying less tax as the size and timing of the lump sum may mean the taxed portion gets taxed in a higher tax bracket whereas a pension you receive after you've stopped working may have little or no tax to pay.

I forgot to mention one very big catch with lump sums. You are assumed to draw down the growth portion first and the capital last. This means if (as is often the case) you take both a lump sum and a pension you may well find that both portions are fully taxed as the growth since moving to Australia exceeds the amount of the lump sum and the capital you had before moving has funded the pension on which you have little or no UPP to claim!

The fact that UK pension funds will often tell people that a 25% lump sum is tax free (because they are talking about UK tax) doesn't help.

Edited May 2, 2022 by Ken

[Ken 1,527]

On 01/05/2022 at 11:45, Lazy Cow said:

re. Super, I am still working so that sounds good, thank you  

Be aware that if you want to claim a tax deduction for an amount paid into your Super there are some steps to follow. Basically you have to tell your Super fund that you are going to claim a tax deduction. They will then deduct 15% tax from the contribution (same as when your SGC payments from your employer go in). You will however save whatever your marginal rate of tax is on that contribution when you lodge your tax return. Higher rate payers may have to pay 30% tax on the contribution but they are obviously going to save 47% tax on their income.

If you just pay in without notifying your Super fund they don't take tax off, but you can't claim a deduction and the contribution becomes an untaxed part of your super fund - which means in some circumstances (but not all) it gets taxed when withdrawn from the fund.

[Marisawright 10,066]

6 minutes ago, Ken said:

Be aware that if you want to claim a tax deduction for an amount paid into your Super.....

I didn't explain all that because I would expect the Super fund to advise her.  My super fund explained it all to me very clearly. She might even end up doing a Transition to Retirement.

As for lump sum vs pension etc, you may have noticed that Andrew from Vista advised her it wasn't worth paying for their services to work out the best strategy because the amount is so small.

[Ken 1,527]

3 minutes ago, Marisawright said:

I didn't explain all that because I would expect the Super fund to advise her.  My super fund explained it all to me very clearly. She might even end up doing a Transition to Retirement.

As for lump sum vs pension etc, you may have noticed that Andrew from Vista advised her it wasn't worth paying for their services to work out the best strategy because the amount is so small.

I find a lot of people who read these sort of threads have slightly different circumstances than the original poster so I try to include more information to cover circumstances less specific than whatever the OP outlines.

[rammygirl 2,063]

If you are taking a final salary pension ( like mine from Uk local gov) with a defined lump sum followed by a pension does this differ? I had to take a lump sum but my husband doesn’t from his SIPP. I was told the lump sum would be taxed on the difference quoted on leaving Uk (just for that amount not the whole value of the pension, not even sure what that would be) and the pension would be treated as income.

[Andrew from Vista Financial 628]

11 hours ago, rammygirl said:

If you are taking a final salary pension ( like mine from Uk local gov) with a defined lump sum followed by a pension does this differ? I had to take a lump sum but my husband doesn’t from his SIPP. I was told the lump sum would be taxed on the difference quoted on leaving Uk (just for that amount not the whole value of the pension, not even sure what that would be) and the pension would be treated as income.

There is a difference in the calculation for AFE on the initial lump sum between a DB and a DC scheme. With a DB scheme the AFE is apportioned whereas with a DC scheme it is not however the AFE cannot exceed the lump sum amount in any event.

[rammygirl 2,063]

Thanks for clarification.  My lump sum and pension started this year, i do have an accountant who will do the returns for me but I like to try and get my head round it!