Transfer of UK pension to Australian QROPS personal superannuation fund

[Keith and Linda]

Thanks Keith and Linda - how did you choose which QROPS company to choose please?

 

Sorry cannot remember exactly, I know we went to a seminar 1st then did some other research to see if things were all legit, checked what my super fund hear could or wanted or able to do, which was nothing, then went for it, always peeves me about the cost of things but cannot avoid that, happy in the end and no regrets. Once it was over here in a fund then I just rolled it over into my works industry fund.

There are some companies which advertise in the 'International Express' this where the seminar may have come from.

 

Best of luck with everything

[Andrew from Vista Financial]

I moved my uk pension to a QROPS back in 2009. My preservation age is 60, now 47, so still a few years before I can or even want to draw on it so no problems with any unauthorised payment. I have been reading through this thread with some interest and a little worried as I may, for family reasons, be returning to the UK. It may well transpire that I will be in the UK when I reach my preservation age. Even though I would have reached the required age and will not be receiving any unauthorised payment as far as the QROPS and HMRC is concerned, does anybody know if I will be hit by HMRC for any tax, and if so how much, when I access my fund, as I will then resident in the Uk?

 

Thanks for any advice or info.

Gary

 

Hi Gary

 

I have replied to your PM.

 

Regards

 

Andy

[Andrew from Vista Financial]

Gary you may have done the right thing as (from what I understand) if you leave a pension in UK some of the pension schemes may in effect not be able to pay out in the future so anyone within those schemes who do not move their money over to Aus may lose out anyway if they happen to be in a scheme that *folds* due to the lack of funds to pay out.

 

 

The above is a big concern - conversely some of the pension schemes in Aus have performed terribly resulting in money within those schemes being lost due to poor investment funds or alternatively administration fees.

 

Either way - it seems pension schemes over the years in both UK and Aus have made millions from those people who have invested in them only to find they have been poorly run by the very people trusted to look after them. Then when you move to Aus and have to make a decision as to what to do ie whether to transfer over or keep in the UK, neither is failsafe and also if you transfer it to Aus then decided to go back to UK after all you have to move it all again!

 

This is a mine field and still as clear as mud :-(

 

Hi Pommyaussie

 

I take it you are referring to Final Salary Schemes that are underfunded with this comment.

 

I certainly would not be tranfserring a Pension based upon this understanding, yes some schemes are in a shortfall position however not all and there are generally things in place to address these underfunded schemes and also a government compensation scheme in place.

 

With regards to Super Funds losing money, yes there were loses for a lot of people over the GFC period as most people are invested in the markets with their Super and during this time the markets went down.

 

However since then and certainly over the longer term generally most people's Super Funds have performed positively (again as most people are invested in the markets within their Super, typically the Balanced option) and certainly higher than having the money invested in Cash.

 

If you are concerned with the way that the fund is being run then perhaps look to make the investment decisions yourself or work with someone that can assist.

 

The people who look after Super Funds i.e the Trustees are governed by the trust deed to act in the best interests of their members as you say downturns in markets results in investments underperforming it does not mean that a fund is being run poorly.

 

Sorry if some of the above sounds patronising, I do not mean it to be but there is a big misconception around Pension/Super Funds by many Australians and the Australian Government do not help matters with their constant tinkering of the rules.

 

Regards

 

Andy

[Pommyaussie]

Hi Pommyaussie

 

I take it you are referring to Final Salary Schemes that are underfunded with this comment.

 

I certainly would not be tranfserring a Pension based upon this understanding, yes some schemes are in a shortfall position however not all and there are generally things in place to address these underfunded schemes and also a government compensation scheme in place.

 

With regards to Super Funds losing money, yes there were loses for a lot of people over the GFC period as most people are invested in the markets with their Super and during this time the markets went down.

 

However since then and certainly over the longer term generally most people's Super Funds have performed positively (again as most people are invested in the markets within their Super, typically the Balanced option) and certainly higher than having the money invested in Cash.

 

If you are concerned with the way that the fund is being run then perhaps look to make the investment decisions yourself or work with someone that can assist.

 

The people who look after Super Funds i.e the Trustees are governed by the trust deed to act in the best interests of their members as you say downturns in markets results in investments underperforming it does not mean that a fund is being run poorly.

 

Sorry if some of the above sounds patronising, I do not mean it to be but there is a big misconception around Pension/Super Funds by many Australians and the Australian Government do not help matters with their constant tinkering of the rules.

 

Regards

 

Andy

Thanks Andy - I don't see your post as patronising as you actually agreed with my post. Yes I meant final salary pension (apologies for not making that clear).

 

However I do believe some Super funds were mismanaged by inadequate management hence some pensioners having a big fat zero in their accounts and now having to work well into their 70's or 80's as they no longer have any funds remaining for a pension. Like you say people can manage their own funds but realistically unless you understand the markets this is not a good idea, besides if trustees are trusted to run the accounts, then they should be able to do so. We shouldn't be afraid of holding them accountable and whilst the GFC created some of these accounts to default, some of them were also poorly managed and the reality is this could happen again so it shouldn't be under estimated as a real problem.

 

My pension in UK is a final salary package and the trustees of the scheme have warned the future is not rosy as the scheme is costly and given the outlook of the company, there is a real possibility they will run out of money. For this reason I need to make a decision whether to take the money and run (transfer to a QROPS in Aus and pay tax on money earned since I left UK) or take a chance and leave it in UK until it matures. My concern is if I transfer over I may lose more in admin fees or the QROPS I move it to performs badly and I end up with a piddling amount at the end. I also have a few Aussie pensions scattered here and there from various companies I've worked for - I admit I haven't managed these as I can't even recall them all (to my embarrassment) so I would like to know how I can find out how many and who they are and possible amalgamate them.

 

In summary this pension scheme malarkey is a bit of a nightmare - which is likely to cost an arm and a leg in Admin fees to sort out. Seems everyone wants a piece of the pie - which again all comes out of the pension pot......

[gpo1971]

Do you still pay less tax on the move the sooner you do it? I seem to remember this was the case when I moved mine a few years ago, I ended up paying more tax due to waiting too long.

Also, I am sure I was told that, once my UK pensions had been transferred to Australia, they could not be transferred back should I return to the UK; they would have to be drawn from Australia and would thus incur additional tax. Is that still correct?

 

If both conditions still exist, people need to consider carefully. For me, I’m staying put for life and want everything in 1 place, that was my driver.

[Pommyaussie]

Hi gpo1971

 

My understanding is if you transfer within the first six months of moving to Aus there is nothing to pay however if you transfer it after this point you pay tax only on the increase incurred after this point. I could be wrong - I'm sure someone will be able to clarify.

 

 

Not sure about whether you can transfer back to UK or not? Personally that doesn't apply to me either as we are also here to stay.

[averina]

We are in the process of transferring ours, you are right in saying if you transfer within the first 6 months of becoming a PR you're not taxed here but who is confident in that first 6 months that they are going to stay? So now 7 years later we have been told that whatever the scheme has accrued since leaving the UK you have to pay 15% tax on and also under the age of 65 you can only transfer $450.000 so if your pension is worth more you pay 46.5% tax on the difference. If 65 or over you can only transfer $150.000. I would be interested in any advice on my info.

[Andrew from Vista Financial]

We are in the process of transferring ours, you are right in saying if you transfer within the first 6 months of becoming a PR you're not taxed here but who is confident in that first 6 months that they are going to stay? So now 7 years later we have been told that whatever the scheme has accrued since leaving the UK you have to pay 15% tax on and also under the age of 65 you can only transfer $450.000 so if your pension is worth more you pay 46.5% tax on the difference. If 65 or over you can only transfer $150.000. I would be interested in any advice on my info.

 

Hi averina

 

You are right in that generally one has to pay tax on any growth (in Australian Dollar terms) since becoming tax resident to the money arriving and yes tax can be paid at a concessional rate of 15% from within the superannuation fund or at a persons marginal tax rate.

 

In relation to the contribution caps, $150,000 is the non-concessional cap per financial year however if one is below age 65 they may be able to utilise the bring forward rule whereby they can use two future financial years of $150,000 and contribute up to $450,000 in one financial year without breaching.

 

Any growth on the pension is not counted towards the contribution caps and is know as applicable fund earnings (if electing for the super fund to pay the tax).

 

Over the age of 65 the two year bring forward rule cannot be utilised and one can only contribute to super after this age if they meet the 'works test'.

 

If someone does have a pot over $450,000 there are potentially strategies that can be deployed to avoid bringing in more than $450,000 at a time.

 

 

Regards

 

Andy

[Cadas]

I've recently gone through the process of transferring several UK pensions over to an smsf here in Australia. But we've now ended up in a bit of a stalemate with our auditor. He is demanding rollover statements defining the tax position for each fund. Non of the UK funds give any such document and have simply given transfer statements.

 

I've passed on all of these, plus the qrops paperwork and declarations that we were not tax resident for the last five years in Australia but to little effect.

 

Am I missing something obvious?

[Alan Collett]

Sounds like you might need a new auditor who understands transfers in from the UK ...

 

So far as I know the chap who audits our clients' Self Managed Super Funds doesn't ask for such a document.

 

Best regards.

[Andrew from Vista Financial]

I've recently gone through the process of transferring several UK pensions over to an smsf here in Australia. But we've now ended up in a bit of a stalemate with our auditor. He is demanding rollover statements defining the tax position for each fund. Non of the UK funds give any such document and have simply given transfer statements.

 

I've passed on all of these, plus the qrops paperwork and declarations that we were not tax resident for the last five years in Australia but to little effect.

 

Am I missing something obvious?

 

Hi Cadas

 

It would seem that your Auditor has not experienced UK to Oz transfers.

 

A rollover benefits statement is required to be provided by an exiting fund to the receiving fund if switching superannuation funds within Australia.

 

The statement breaks down the tax components and preservation components within the fund so that the new fund can identify them for reporting purposes.

 

A UK Pension Transfer although called transfer is more like a contribution to a superannuation fund and therefore generally the transfer is treated as a non-concessional contribution to the fund thus a tax free component and preserved (if within the caps of course).

 

However if there were any applicable fund earnings (AFE) declared and tax deducted on these AFE from within the super fund this part of the contribution i.e the growth amount is generally a taxable taxed component.

 

These contributions are also generally recorded as foreign super transfers by super funds.

 

The ATO should be able to clarify this or as Alan states, perhaps a new Auditor with UK transfer experience.

 

Hope this helps.

 

 

Regards

 

 

Andy

[jorgon]

He is demanding rollover statements defining the tax position for each fund. Non of the UK funds give any such document and have simply given transfer statements. I've passed on all of these, plus the qrops paperwork and declarations that we were not tax resident for the last five years in Australia but to little effect. Am I missing something obvious?

 

Hi Cadas - I would suggest you inform your auditor that the requirement to provide a rollover benefits statement comes from section 390-10(2) of schedule 1 of the Taxation Administration Act 1953. The requirement is imposed upon a "superannuation provider" in relation to a "superannuation plan" which pays a "rollover superannuation benefit". All these concepts are solely under Australian tax and superannuation law. A UK pension fund is not covered by these provisions at all. Hence there will be no rollover benefits statement arising from a transfer from a UK pension fund.

 

Remember that you cannot access benefits from your transferred fund for 5 years under the QROPS requirements - which is moving to 10 years from 06/04/2012.

Since this thread has revived I just need to point out that this change (referred to in one of the very early posts) never happened.

[averina]

Hi Andy

 

Are you able to advise on the "potential strategies" that you speak about when bringing over more than $450.000 at one time. I've read somewhere that you can keep bringing over every so many years until the lot has been transferred?? Thank you for your advice it made perfect sense.

 

Regards

 

Averina

[Andrew from Vista Financial]

Hi Andy

 

Are you able to advise on the "potential strategies" that you speak about when bringing over more than $450.000 at one time. I've read somewhere that you can keep bringing over every so many years until the lot has been transferred?? Thank you for your advice it made perfect sense.

 

Regards

 

Averina

 

Hi Averina

 

No problem.

 

Regarding the over $450,000 pots, yes this is an area that we are able to provide advice in and would be happy to work with you on this if required.

 

Regards

 

Andy

[koyasan]

Interesting thread and thought I would post my own experience. I recently transferred my pension from the UK to AustralianSuper. I did all the paperwork myself which was relatively straighforward but was shocked by the terrible exchange rate when my Funds were exchanged from sterling to Aud by NAB through AustralianSuper. To cut a long story short after a lot of emails I eventually found out that I was given a carded rate on my fund (worst possible) and this was inspite of AustralianSuper claiming they had a special arrangement with NAB to get the most favourable rate for their clients. I was charged a hefty 3.5% premium on top of the spot rate which was excessive and AustralianSuper were adamant it was a fair rate. Fortunately I trade Forex so I just knew I was not treated fairly. The latest is they have admitted the rate should have been more competitive (no apology of course) and have amended to the interbank rate plus 0.7% but so far have refused to backdate the loss of interest accrued since the transfer. The point I would make is that I question if AustralianSuper monitors the rate given by NAB for transfers and unless you scream loud enough the only favourable rate is one which benefits NAB. As a bank maybe NAB are just doing what comes naturally but my real criticism is with AustralianSuper for accepting such a bad rate in the first place. I just wonder how many people have transferred their UK pensions through AustralianSuper and unknown to them have got a bad deal in the Exchange rate. Fortunately historical interbank rates can be easily checked and with persistence you can get full details of the rates applied to your transfer. What surprises me is that to date I do not know of any class action being taken against AustralianSuper for this type of practice. Is AustralianSuper really only run for the benefit of its members?......look past the hype and demand the details.

[jorgon]

I think it is worth pointing out here that it is not strictly necessary to convert your pension money from British pounds into Australian dollars in order to transfer it into the Australian superannuation system. If the receiving fund is able to receive the transfer in British pounds, then the conversion into Australian dollars can be postponed to a more convenient time if it is done at all. The transfer is achieved, not by converting the money into Australian dollars, but by transferring the pension money to the Australian superannuation fund trustee.

[koyasan]

My pension was transferred in sterling though I don't think I was given an option to keep the transfer in sterling and certainly I had no control over the timing of the exchange to Aud. In fairness to AustralianSuper I was happy about converting to Aud and I'm not really critical of timing issues as it can work for you or against you, that's the nature of Forex dealing. My point is that whenever the FX transaction does take place the rate should be a fair one and given the amounts involved should be a lot better than retail rates. It's not good enough, and in my case I can only say what happened with AustralianSuper, to claim that the Fund has a special arrangement to get the best rates when plainly the evidence suggests the opposite. My second point is that we should have confidence in a process where the Super Fund is monitoring the exchange rate given by the bank against some measurable benchmarks such as the interbank rate. In my case the first reaction of AustralianSuper was to defend the bank rate given by NAB and it was up to me to pursue the evidence to prove otherwise. I think a bit more transparency and a closer look at policy is warranted and if any member of this Forum has transferred their UK pension to AustralianSuper then it is worth checking the exchange rate. My experience may well have been the exception, who knows.

[Andrew from Vista Financial]

Thank you for sharing your experience koyasan, very interesting.

[Alan Collett]

jorgon makes good points about not being compelled to lock into a given GBP-AUD exchange rate, though a Self Managed Super Fund (rather than an industry fund such as Aus Super) will be required to retain fund assets denominated in GBPs.

 

SMSFs are usually only appropriate where there is a minimum total fund value, due to the costs of compliance attaching to a SMSF - annual accounts prep, tax return, and an audit. The general rule of thumb is that this should be at least A$200k - though there are varying schools of thought as to where the cut off should be.

 

Best regards.

[koyasan]

Alan..... In the context of my case it makes no difference whether I went down the route of an SMSF or go with an Industry Fund , at some point an FX transaction has to take place and how that is determined in a fair and transparent manner is the issue I'm highlighting. In my situation the process was neither fair nor transparent and in the absense of any internal monitoring the responsibility to scrutinise the process was left to me. If a bank gives an unfair exchange rate the Industry Fund should be making them accountable. I don't know the answer to this but is there a conflict of interest between a Super Fund and the bank which determines the exchange rate? Do Super Funds earn any commissions from the banks for giving them the business? I take it they don't but I just don't know.

[koyasan]

Quick update and question. Finally got AustralianSuper to backdate interest from date of transfer. A lot of effort but the principle of being treated fairly was worth it.

 

Now I'm discovering another animal in the Super Fund jungle.........the ATO! Ok, so I asked them in writing to clarify how to calculate the assessable part of my UK Pension Fund from the time I became resident (Feb, 2005) until date of transfer (Nov,2013). Common sense told me to value what my UK Fund was worth in 2005 (sterling valuation supplied by my UK Fund), convert in terms of AUD (reference to historical exchange rates published by RBA) and subtract from the actual transfer value in Aud in Nov 2013 and then decide how to deal with the tax implications. Unfortunately my common sense was not shared by ATO and by phone they told me that I can only determine the growth part of my UK Fund in sterling and then whatever the difference between the Fund's values from 2005 to 2013 apply the exchange rate at time of transfer.

 

I did some research and got a very helpful email from Jeremy Gordon of http://www.directdocs.com.au/ suggesting that the ATO may be incorrect. I also read an interesting article by Bryan Ashenden (http://www.moneymanagement.com.au/professional-development/capability/superannuation/consolidating-superannuation-accumulated-australia) which also suggests the opposite of what the ATO is telling me. I don't actually see anything on the ATO website which specifically addresses the use of sterling or Aud to calculate assessable earnings. Does anyone else have any knowledge of this and in particular is there some evidence or case history I can use with the ATO?

[koyasan]

Sorted this with the ATO, I can use Aud value of UK Fund the day before I arrived in Australia subtracted from the Aud value at date of transfer to calculate assessable growth (anyone interested can look at ATO private ruling number 1012552222121 pg 8 as an example).

 

I'm now back with AustralianSuper who say that even though I have been a non UK tax payer for more than 5 years and have reached preservation age I am not allowed to take more than 30% of the Transfer value as a lump sum. I thought as I have been continuous resident in Australia for tax purposes since 2005 there would be no restrictions on lump sum withdrawal (subject to tax free limit of $180,000)........hope somone can comment on this........please?

[Andrew from Vista Financial]

Quick update and question. Finally got AustralianSuper to backdate interest from date of transfer. A lot of effort but the principle of being treated fairly was worth it.

 

Now I'm discovering another animal in the Super Fund jungle.........the ATO! Ok, so I asked them in writing to clarify how to calculate the assessable part of my UK Pension Fund from the time I became resident (Feb, 2005) until date of transfer (Nov,2013). Common sense told me to value what my UK Fund was worth in 2005 (sterling valuation supplied by my UK Fund), convert in terms of AUD (reference to historical exchange rates published by RBA) and subtract from the actual transfer value in Aud in Nov 2013 and then decide how to deal with the tax implications. Unfortunately my common sense was not shared by ATO and by phone they told me that I can only determine the growth part of my UK Fund in sterling and then whatever the difference between the Fund's values from 2005 to 2013 apply the exchange rate at time of transfer.

 

I did some research and got a very helpful email from Jeremy Gordon of http://www.directdocs.com.au/ suggesting that the ATO may be incorrect. I also read an interesting article by Bryan Ashenden (http://www.moneymanagement.com.au/professional-development/capability/superannuation/consolidating-superannuation-accumulated-australia) which also suggests the opposite of what the ATO is telling me. I don't actually see anything on the ATO website which specifically addresses the use of sterling or Aud to calculate assessable earnings. Does anyone else have any knowledge of this and in particular is there some evidence or case history I can use with the ATO?

 

 

The ATO where giving different information out depending upon who you spoke too and not just verbally but also in Private Rulings (PR's)!!!

 

After many meeting they got their act together and all PR's thereafter started using the one method of $ to $ not GBP to GBP.

[Andrew from Vista Financial]

Sorted this with the ATO, I can use Aud value of UK Fund the day before I arrived in Australia subtracted from the Aud value at date of transfer to calculate assessable growth (anyone interested can look at ATO private ruling number 1012552222121 pg 8 as an example).

 

I'm now back with AustralianSuper who say that even though I have been a non UK tax payer for more than 5 years and have reached preservation age I am not allowed to take more than 30% of the Transfer value as a lump sum. I thought as I have been continuous resident in Australia for tax purposes since 2005 there would be no restrictions on lump sum withdrawal (subject to tax free limit of $180,000)........hope somone can comment on this........please?

 

 

 

Just a couple of notes:

 

 

• Reaching preservation age is not a condition of release in it's own right, your age and or employment status plays a part also;

 

 

 

 

• Australian Super are only obliged to report certain transactions to HMRC not to try and enforce HMRC rulings;

 

 

 

 

• Australian Super's obligations are to report for 10 years of receiving the funds;

 

 

 

 

• I think you are confusing things slightly, you mention a tax free limit of $180,000, I believe that you are referring to the low rate cap here? Generally any monies transferred from UK Pensions are known as tax free components (other than the Applicable Fund Earnings (AFE) and these become a taxable taxed component if tax has been met from within the fund), tax free components are tax free on withdrawal at all times. Taxable taxed components are tax free after the age of 60 currently.

 

 

 

 

• If you are entitled to withdraw funds from an Australian perspective i.e have met a full condition of release and Australian Super are still creating issues you could maybe consider transferring to another QROPS Super Fund first.

 

 

 

 

Regards

 

Andy

[koyasan]

Thanks Andy for very helpful response. My understanding is, as you rightly say, if all the proper conditions of release are met and having lived here as a tax resident since 2005 then I should be treated the same as an Australian member. Of course there are still reporting conditions to HMRC but that's it. From doing a bit of my own reading I think AustralianSuper are misreading the QROPS requirements. HMRC conditions of Qrops state:

[h=2][/h] The overseas pension scheme must satisfy at least one of the two tests below:

[h=3]Test 1[/h]This is a test of location / scheme type. At least one of the following bullet points must be satisfied:

 

 

• the scheme must be established in a Member State of the European Union, Norway, Liechtenstein or Iceland, or
• the scheme must be established in a country or territory, other than New Zealand, with which the UK has a Double Taxation Agreement that contains exchange of information and non-discrimination provisions, or
  
• the scheme must satisfy the requirement that, at the time of the recognised transfer in, the transfer is made to a pension scheme which is a KiwiSaver scheme as defined in section 4(1)(interpretation) of the KiwiSaver Act 2006 of New Zealand.
  

 

[h=3]Test 2[/h]This test requires that, at the time of the recognised transfer into the overseas pension scheme, all four of the following sub-requirements are met:

 

 

• the rules of the scheme are such that at least 70% of the funds transferred in will be designated by the scheme manager (defined on RPSM13104040) for the purpose of providing the member with an income for life,
• the rules of the scheme are such that the pension benefits (and any associated lump sum) payable to the member under the scheme, to the extent that they relate to the transfer, are payable no earlier than normal minimum pension age (see - RPSM08100010 to RPSM08100030 - usually age 55) or earlier ill-health (see RPSM08100070 for evidence requirement),
  
• the rules of the scheme are such that membership of the scheme is open to persons resident in the country or territory in which it is established, and
  
• if the scheme is established in Guernsey and is an exempt pension contract or an exempt pension trust under s157E of the Income Tax (Guernsey) Law 1975, then the scheme must not be open to non-residents of Guernsey.
  

 

 

Clearly AustralianSuper would meet test 1 as it has a DTA with the UK and because of the non discrimatory provisions all members should be able to access their Funds under the normal Australian conditions of release. This point was well made in an article I read by Sarina Raffo http://www.moneymanagement.com.au/professional-development/capability/financial-planning/pension-options-for-uk-migrants

 

On a broader point I am dismayed by the misinformation from ATO and AustralianSuper, if they don't know what they are talking about who does?. I sympathise with many members who take the information at face value.

In any case it's back to AustralianSuper to argue my case again.