Pension move from UK to AESF

[TheBravefinch30011964]

Considering whether to move my pension (approx 250 GBP) to Australia and understand without wanting to set up a SMSF with ongoing reporting responsibilities etc that AESF via ICVM is the only option. Anyone have any experience of using them, the length of time it takes to complete and the performance of the fund after moving? I saw management fees of .08% but having looked at UK costs they are at about 1% so seems in line. Main concern is being taxed on the income if I don't do this!

Any advice or insight gratefully received!

 

[Andrew from Vista Financial]

Hi

So yes AESF are the only public offer scheme that are able to accept UK pension transfers and as you say other than this it would have to be a SMSF.

I deal regularly with AESF and have experience using them for clients for 7 years, I also have clients that we set up a SMSF (QROPS) for as well.

The vehicle we recommend does depend on quite a number of things and this comes down to our clients’ goals and objectives, circumstances and preferences.

Your balance does fit with a SMSF potentially being more cost effective however this may not be the case depending on what services and advice you need going forward.

The 0.8% you mention is an administration fee and has nothing to do with fund management fees (thus performance), this fee is an explicit fee.

Once in the Super Fund and on Platform the money can be invested into a range of managed funds and ETFs (ASX (AUD) and LSE (GBP) listed).

There are index funds and active funds to choose from and these range from single sector to multi-asset (diversified) and so this is where the performance comes into play. 

I'd say and certainly from my client experience that he Vanguard diversified funds hold the most members money, for using these as an example the management expense ratio (fee (MER)) is 0.29%. Investment Management Fee's are implicit fee, performance is stated net of these fees.

If you compare the fee (admin) for AESF to other Super Funds it is much higher, I'd say an average admin fee is 0.15%. That said, they have the monopoly, so this allows them to charge this, but they do also offer UK listed ETFs, which is pretty unique for a Super Fund and they of course do the HMRC reporting.

if you compare this to an SMSF, well that depends on how much you want to do yourself or outsource.

Most will outsource the admin and tax/financials, and they may use their Accountant to do these (therefore cost = how long is a piece of string) or outsource to a specialist SMSF Administrator. The fees for these do range and I'd say this might be between $1,500 - $3,500 annually, there is then regulatory and audit costs.

The SMSF Administrator that we use cover the financials and engage the Auditor, so as an example with regulatory costs added (and based on no more than say 5-8 investment holdings) all up comes in around $2,500 annually.

Once in the SMSF again like AESF the money can be invested, therefore depending on how you invest and what you want to invest in there going to be further fees.

You then are not limited to the investments on the AESF Platform and can go further afield (for example it's even possible to invest in some industry funds now via an SMSF).

SMSF investors may use an online broker and purchase direct shares/ETF's and so there is generally no administration fees to hold shares this way however some will set up an Investment Wrap or Platform to buy shares and managed funds as these provide a much better service in relation to managing the portfolio (not much of an issue when using an online broker account if only looking to hold say 1 or 2 diversified ETFs) however there is then administration fees attached.

That covers the main differences between the two in terms of fees and investments, you do then have to understand the other differences ie responsibility etc and reporting (the SMSF Administration firm we use provide this service).

Hopefully that assists a little.

To go one step further, have you figured out you transfer strategy?

I assume that you are age 59.

When looking at a transfer strategy, i would need to understand what the Applicable Fund Earnings (AFE) are ie how much, as this will help understand if a transfer will need to be progressive or not.

Also there may be some merit in looking at a strategy where a partial amount if transferred allowing a lump sum to be taken tax free with the residual; being transferred at a later date.

This will assist in keeping admin fees down (if going down the AESF path for example).

The other point to note is that the monies once transferred do not have to remain in the QROPS for that long (5-10 years is the max) but it may be possible to extract much sooner than this, this may work well if someone has a partner and has their contribution cap availability to utilise.

Regards Andy

Edited July 28, 2023 by Andrew from Vista Financial

[Marisawright]

@Andrew from Vista Financial, the big concern I have with SMSFs for migrants is the complications that arise if you decide to move overseas again, after you've set it up, as SMSF trustees can't live overseas.  Your view?

[Andrew from Vista Financial]

9 minutes ago, Marisawright said:

@Andrew from Vista Financial, the big concern I have with SMSFs for migrants is the complications that arise if you decide to move overseas again, after you've set it up, as SMSF trustees can't live overseas.  Your view?

Indeed there may be a situation where someone decides that Australia is no longer the place for them and decide that they will move back to the UK.

We would certainly not consider transferring a Pension to Australia unless there is intention to remain/retire here permanently, that's not just a consideration for SMSFs.

But of course people's minds can change and so these risks do need to be considered, of all our SMSF clients this has happened once.

If a person with a SMSF did choose to move back permanently to the UK then there are several ways that this may be dealt with without it creating too much of an issue, that may be a rollover to another Super Fund (QROPS or Non-QROPS) or a withdrawal of funds in their entirety.

It does of course depend on the Trustees/Members circumstances such as age (preservation age) and how long they have been outside of the UK (non UK tax resident) and employment situation, these factors would dictate which angle of attack might be best when considering UK and Australian tax and super rules.

So yes definitely something to think about if a SMSF is a serious contender.

 

[Steve Elliott]

2 hours ago, Andrew from Vista Financial said:

Indeed there may be a situation where someone decides that Australia is no longer the place for them and decide that they will move back to the UK.

We would certainly not consider transferring a Pension to Australia unless there is intention to remain/retire here permanently, that's not just a consideration for SMSFs.

But of course people's minds can change and so these risks do need to be considered, of all our SMSF clients this has happened once.

If a person with a SMSF did choose to move back permanently to the UK then there are several ways that this may be dealt with without it creating too much of an issue, that may be a rollover to another Super Fund (QROPS or Non-QROPS) or a withdrawal of funds in their entirety.

It does of course depend on the Trustees/Members circumstances such as age (preservation age) and how long they have been outside of the UK (non UK tax resident) and employment situation, these factors would dictate which angle of attack might be best when considering UK and Australian tax and super rules.

So yes definitely something to think about if a SMSF is a serious contender.

 

From one financial adviser to another , - Great comprehensive answers, covering all the salient points, easy to understand. Good answer!

I agree, the fees for the administration are high relative to the costs of other platforms, but total fees aren't too bad, given many super providers do not offer the lower cost ETF's, instead offering higher cost managed funds instead.

From my recollection, when I last looked into it, the AESF used to have quite high exit fees, if you exited the fund within the fist few years. I suspect this was intended to recoup costs associated with the managing the physical transfer? - They now seem to charge a flat fee upon receipt of funds and penalty exit fees have gone. 

[Andrew from Vista Financial]

Thank you Steve, nice of you to say.

Yes, typically the fee to set up ranges between $595 and $1,040 and exit fees are now not charged.