Is AESF a good choice for pension transfer

[Enjoylife]

Hi

I'm 59 and have lived in Oz since 2012, but have had to retire due to health issues. During covid I requested a CETV from my UK defined benefit pension and was surprised to see its value. However there was a massive delay in getting this valuation and a company I approached for advise said I now needed another valuation which I got last year (after another long delay) of just over half the original valuation which was very disappointing and I decided it probably wasn't worth bring it over. I thought its worth revisiting this and just got another valuation of GBP158k, not great but might be worth bringing over.

I wasn't really happy with the company I approached about the transfer because they seemed a bit gung ho and vague about details, leaving me unsure if I could trust them. They also insisted on large management fees and seemed to avoid answering questions like "is that really in my best interest".

At the time I realized AESF was on the QROPS list but didn't realize I could handle all the paperwork myself. I am a tax resident and recently started a part time job to try and ensure I will be financially secure. I also have a small UK teachers pension I started drawing last year. Given my health and the tax implications of leaving my other DB pension in the UK , I am reconsidering a transfer again. I have done a spreadsheet and it look favorable for at least the next 25 years and I doubt I will live that long.

My questions:

1. There are lots of warnings about getting the transfer wrong and having to pay a massive tax penalty but I have done some research it doesn't look too difficult. One thing that did concern me was that AESF only has just over 1000 members and I wonder if the are reliable and if its future is stable? This accounts for its relatively high fees.

2. My UK DB pension has the option of a GBP48k lump sum, I was advised I can cash this when transferring the pension to a QROPS fund. Is this true?

3. I hit my preservation age next year, could I start a transition to retirement pension from the AESF QROPS fund or does the 5 year rule mean I cannot touch this money?

4. If I start a TTR, age 60, from this QROPS fund, can I cash it in when I am 65?

5. Does the 5 year rule mean I cannot roll the QROPS fund into my existing Oz Super? or if I can, when?

6. I understand that my other option is a SMSF but it does not seem worth it for the relatively small fund. Are there any other options that might give me a tax advantage, particularly when if I get the start the UK age pension at 67 which will push me into a higher tax bracket?

I expect you are prohibited on giving advice but can you comment of my understanding of the process?

Kind regards.

 

[Marisawright]

As far as I am aware, AESF is the only Australian super fund which is QROPS-listed.  It is fairly new and untried, and fairly small, so I share your reservations about it, but if you 're determined to transfer then it's your only choice. 

It seems contradictory to say your pension/super balance is too small for a SMSF and yet your British pension is going to push you into a higher tax bracket, which suggests your other pension payments would be substantial?  

I don't see why you couldn't take a lump sum when you transfer the balance of your UKDB pension fund into a QROPS fund, but you'll be liable for tax on the lump sum which would be painful.

One solution would be to consolidate your existing Australian super plus your UK DB pension into one SMSF.

[Andrew from Vista Financial]

On 24/08/2024 at 00:04, Enjoylife said:

Hi

I'm 59 and have lived in Oz since 2012, but have had to retire due to health issues. During covid I requested a CETV from my UK defined benefit pension and was surprised to see its value. However there was a massive delay in getting this valuation and a company I approached for advise said I now needed another valuation which I got last year (after another long delay) of just over half the original valuation which was very disappointing and I decided it probably wasn't worth bring it over. I thought its worth revisiting this and just got another valuation of GBP158k, not great but might be worth bringing over.

I wasn't really happy with the company I approached about the transfer because they seemed a bit gung ho and vague about details, leaving me unsure if I could trust them. They also insisted on large management fees and seemed to avoid answering questions like "is that really in my best interest".

At the time I realized AESF was on the QROPS list but didn't realize I could handle all the paperwork myself. I am a tax resident and recently started a part time job to try and ensure I will be financially secure. I also have a small UK teachers pension I started drawing last year. Given my health and the tax implications of leaving my other DB pension in the UK , I am reconsidering a transfer again. I have done a spreadsheet and it look favorable for at least the next 25 years and I doubt I will live that long.

My questions:

1. There are lots of warnings about getting the transfer wrong and having to pay a massive tax penalty but I have done some research it doesn't look too difficult. One thing that did concern me was that AESF only has just over 1000 members and I wonder if the are reliable and if its future is stable? This accounts for its relatively high fees.

2. My UK DB pension has the option of a GBP48k lump sum, I was advised I can cash this when transferring the pension to a QROPS fund. Is this true?

3. I hit my preservation age next year, could I start a transition to retirement pension from the AESF QROPS fund or does the 5 year rule mean I cannot touch this money?

4. If I start a TTR, age 60, from this QROPS fund, can I cash it in when I am 65?

5. Does the 5 year rule mean I cannot roll the QROPS fund into my existing Oz Super? or if I can, when?

6. I understand that my other option is a SMSF but it does not seem worth it for the relatively small fund. Are there any other options that might give me a tax advantage, particularly when if I get the start the UK age pension at 67 which will push me into a higher tax bracket?

I expect you are prohibited on giving advice but can you comment of my understanding of the process?

Kind regards.

 

Hi

 

Thanks for the post and questions.........there's a lot too unpack here and will take a little bit of time to answer, will get back to you on this soon

 

Andy

[Andrew from Vista Financial]

Have now responded to your direct email

[Enjoylife]

On 24/08/2024 at 15:44, Marisawright said:

As far as I am aware, AESF is the only Australian super fund which is QROPS-listed.  It is fairly new and untried, and fairly small, so I share your reservations about it, but if you 're determined to transfer then it's your only choice. 

It seems contradictory to say your pension/super balance is too small for a SMSF and yet your British pension is going to push you into a higher tax bracket, which suggests your other pension payments would be substantial?  

I don't see why you couldn't take a lump sum when you transfer the balance of your UKDB pension fund into a QROPS fund, but you'll be liable for tax on the lump sum which would be painful.

One solution would be to consolidate your existing Australian super plus your UK DB pension into one SMSF.

By my calculations, getting my DB over to AESF is the most efficient way. It’s a shame it’s been made so difficult.

A full Uk state pension pretty much takes up the first tax bracket and my other 2 pensions would push me into the next tax bracket.

AESF say that taking the lump sum crystallises the UK pension and then funds can only be drawn in the UK. And obviously this is then all subject to tax.

For health reasons it also makes sense to bring the money to Oz.

Consolidating my Oz super with the UK DB into an SMSF is an option I have considered. This mixes the taxed and untaxed components and things become more complicated. QROPS reporting may then involve the amount from my OZ super.

Plus SMSF management is not as straight forward as a retail super, if I end up paying someone to manage this it might negate the benefits.

[Marisawright]

3 hours ago, Enjoylife said:

Plus SMSF management is not as straight forward as a retail super, if I end up paying someone to manage this it might negate the benefits.

It's true that you will require an accountant to look after the admin of your SMSF, and then you'll also have to pay someone if you don't want to manage the investments yourself.   However, don't forget that you are already paying someone to manage the investments in your retail super, over and above the administration fees.  Each investment fund within the super fund can have its own managers and associated fees.  You may also be paying compulsory insurances which you don't want. Worth digging into the detail to find out what fees you are actually paying.  

  Many experts suggest that once you have $250,000 in the SMSF then it becomes more cost-effective than a retail fund.  This article is more conservative:

https://financialautonomy.com.au/when-do-smsfs-make-sense

 

Edited August 29 by Marisawright