Australia and QROPS
Gerard Associates have formed an affiliation with a UK qualified and experienced senior Financial Adviser, Keith Gurd, who is authorised to handle UK pension transfers into QROPS.
If you would like to contact Keith, please get on touch via ourselves on +44 (0)1884 250118 or by email to email@example.com
Keith has worked as a Financial Adviser in the UK for a number of years, prior to emigrating to Australia in 2008, and is uniquely placed to provide advice for individuals either considering emigrating to Australia, or for migrants already resident there. He holds the Advanced Diploma of Financial Planning in the UK and has attained the Diploma of Financial Planning qualification in Australia. In addition, he has passed supplementary Advanced Diploma subjects, Taxation and Estate Planning. Having been through the emigration process himself, he is fully aware of all of the pitfalls and visa requirements and is able to offer practical experience and help from start to finish.
As well as being able to ensure smooth transition of UK pension funds into Australian QROPS, Keith can provide a full financial planning service once you are settled in your chosen city, and can advise on all products and services available in Australia. This could include:
- Ongoing contributions into Superannuation
- Salary Continuance Cover
- Life Insurance and Total & Permanent Disability Cover
- Trauma Insurance
- Mortgage and Personal Finance requirements
- Non Superannuation investments, including Domestic and Commercial Property
To assist with this process, Keith has formed a strategic alliance with a firm of Solicitors who have two English Partners and an English Corporate Advisory Manager. This allows advice to be tailored to an individual’s personal situation, particularly if UK held assets are to be retained whilst living in Australia.
Other areas of advice provided in this connection include:
- Inheritance Tax and when it may cease to apply to UK ex-pats living in Australia
- Wills and estate Planning
- Trust planning in respect of business and personal investment assets
- Succession planning, (personal, business and superannuation,) for business owners and blended families
- Succession disputes. (personal, business and superannuation)
- Family law issues
Introductions can also be made to a Registered Migration Agent to assist with both permanent and temporary visa and sponsorship requirements, as well as legal assistance in this area.
Keith also has access to the Taxation Department of a large accountancy practice represented both in Australia and the UK, with the Melbourne partner having qualified initially in the UK.
The Australian Superannuation System
The Australian Taxation Office describes Superannuation as the following:
“Superannuation is a compulsory, long term savings arrangement that operates primarily to provide income for retirement. Superannuation is intended to supplement, not replace, the Government’s Age Pension.”
Superannuation is a tax effective savings vehicle designed to provide individuals with tax-advantaged income in retirement. The Government has deliberately created an attractive tax environment for Superannuation, in order to give individuals an incentive to save for retirement.
Unlike the UK Pension System, which (currently) provides a non-means tested level of Basic State Pension, the entitlement to which is measured by an individual’s National Insurance Contribution record, Australians do not receive a State Funded Age Pension by right. All entitlement to the Government Age Pension is “means-tested” with individuals having to undergo both an Assets and Income test, which determines the level, if any, of Age Pension payable from Age 65 when most testing takes place. This testing can occur earlier due to health, compassionate or severe financial hardship grounds.
It is, therefore, vitally important for individuals to contribute suitable and affordable levels of contributions into Superannuation as early as possible during their working life, in order to build up a sufficient fund from which to draw down an income when they reach their selected retirement age.
In order to achieve this, a range of incentives has been introduced by the Australian Government in order to help individuals achieve this situation:
- Compulsory Employer Contributions based on 9% of salary as a Superannuation Guarantee Contribution (SGC). These are treated as Concessional Contributions. This percentage will rise in stages from 01/07/2013 until tax year 2019/2020 when it will be increased to 12%.
- Personal Contributions via Salary Sacrifice. These are treated as Before Tax Contributions and are taxed within the Superannuation Fund at a favourable rate, currently 15% (this may be increased to 30% for Higher Earners in the May 2012 Budget), when compared to personal tax rates. These are known as Concessional Contributions. There is an Indexed Cap of $25,000.00 per tax year for all Concessional Contributions (including SGC), and currently there exists a higher Un-Indexed Cap of $50.000.00 per tax year for those aged over 50 until 30/06/2012.
- Non- Concessional (After Tax ) Contributions which are not taxed within the fund, as Tax has already deemed to have been paid. This allowance is currently capped at $150,000 per tax year, however it is possible to Carry Forward up to two years allowance and make one payment of $450.000 in a specific tax year, and then no further contribution allowable for the next three tax years.
- Government Co- Contribution for lower paid employees, worth up to $1000.00 per tax year.
- Proposed Low Income Earners Government Contribution, effective from 01/07/2012.
- Spouse Contribution Splitting. The higher earning spouse is able to offset a partial contribution to the lower paid spouse, subject to capped limit.
All contributions can be invested in a full range of Asset Classes, namely:
- Cash – Bank Accounts and Term Deposits
- Fixed Interest Securities – Listed, Managed Funds
- Property – Direct, Listed, Unlisted, Syndicates
- Australian Shares – Listed and Managed Funds
- International Shares – Listed, Managed Funds
For those individuals requiring more control and greater diversity of assets held in the Superannuation fund, there exists a Self - Managed Super Fund Option. This is a specialist area and will require greater monitoring and reporting procedures.
Benefits can be withdrawn from the fund either at Retirement Age or once a Condition of Release can be met. For those born before 30/06/1960, this “ Preservation Age” is 55 and this will increase in stages to age 60 for those born between 01/07/1960 and 01/07/1964.
Once eligibility to access benefits at retirement has been confirmed, for those over age 65 whether retired or still working, all funds can be accessed tax free. For those aged 60 and over working 10 hours per week or less, benefits can also be accessed tax free at any time.
There may, however, be a reporting liability in respect of QROPS benefits taken as a lump sum under the 5 year Reporting Rule for individuals and a potential tax liability if these payments fall outside of what benefits could have be paid under a UK Registered Pension Scheme.
There are different beneficiary categories termed Dependant and Non-Dependent. For Dependent beneficiaries, lump sum benefits are generally treated as Non-Assessable Non-Exempt Income, which means benefits are payable tax free.
For Non-Dependent beneficiaries, the lump sum benefit would be assessable for tax at a rate of 16.5%, including the Medicare levy in respect of the taxed element of the fund and 31.5%, including the Medicare levy in respect of the untaxed element of the fund. Without the addition of the Medicare levy, these tax rates would be 15% and 30% respectively. Medicare levy is not payable by non-residents but would be payable by residents. An additional Flood levy may also be payable.
There are substantial differences between the tax treatment and benefit structures of Superannuation, when compared to a UK Registered Pension Scheme. Consideration should also be given to the fact that UK State Pensions currently cannot be transferred via QROPS to the Australian Superannuation System. Furthermore, Age Pension in Australia is not paid automatically to all retirees but is means-tested, which in reality ensures that only a minority of Retiring Australian Pensioners actually receive any benefits.
It is vitally important therefore to seek advice at outset about both Australian QROPS and Superannuation, to ensure that retirement planning opportunities are fully maximised.
It is essential that all clients seeks tax and financial advice specific to their own personal circumstances with the relevant tax professional of the jurisdiction(s) in which you are liable or could be liable to tax. This has been prepared on our current understanding of Australian tax policy. However, these are subject to change and may result in tax consequences different from those detailed below. We cannot accept responsibility for its interpretation, accuracy or any future changes to law.
The majority of pension funds in the UK can be transferred to Australia, including local government, NHS pensions and private pensions. Whether it is the right decision needs documented advice.
UK State Pensions cannot be transferred abroad but you will retain the entitlement. The exact amount can be seen by completing a form BR19. A forecast will then be sent to you. Use this link to download a form:
HMRC Form BR19 State Pension Forecast – Printable and Interactive
Transferring to a superannuation fund in Australia which is a Qualifying Recognised Overseas Pension Scheme (QROPS) is a process that involves
- Checking your current scheme arrangements and being aware of the features and benefits being potentially given up.
- Completing applications for the Australian Superannuation Fund. and discharge forms for the UK Pension.
The pension funds transferred are sent by BACS, from your current pension fund into your Australian superannuation fund. They cannot be paid into any other account and they are consequently secure
There is an extensive list of Australian QROPS which can be seen on the HMRC's website. Many of these are employer specific. There is a very competitive arrangement called Australian Super. If a more self managed approach is required, then self invested schemes are also available but as in the UK the costs increase.
The UK system works on the principal of tax relief and largely tax free growth at input with the ultimate retirement benefits (aged 50 to 55+) being taxed. The Australian system for QROPS transfers is one of taxation of fund growth but tax free benefits at retirement post age 60. For certain individuals born before 1st July 1960 and reaching their pension age, it may be possible to access benefits at retirement post age 55, in some instances also tax free.
An individual can elect to have the tax liability paid by the Australian Superannuation fund rather than themselves. The tax is 15% in this case, and the balance is regarded as un-deducted contributions. Without an election to pay at the concessionary rate of 15%, tax is at the individual's marginal tax rate which is usually only advisable for low earners.
With effect from 1 July 2007 the limits on amounts transferred and contributed per person are A$150,000pa or A$450,000 as a lump sum payment with no further personal contributions for 3 years. The rules are A$150,000pa averaged over 3 years. If the transfer value exceeds these limits the fund will tax the excess at 46.5%. Excesses therefore should be transferred in subsequent years or other QROPS in other jurisdictions considered.
- The value that represents the growth component of the fund since your date of Australian residency to the actual date of transfer will not form part of these contributions limits.
- If you transfer your funds to Australia after 6 months of tax residency, you are taxable on the growth since that date. You can elect for the superannuation fund to pay the tax on the growth at 15% or you can be taxed personally at your marginal rate of tax, whichever is suitable.
Overall this "tax free" period is of relatively little value and perhaps is overplayed to expedite clients' decision to transfer. Many pension schemes take longer than 6 months to wind up and transfer.
You will pay the ongoing tax on growth of the fund at 15% or tax at your marginal rate.
Great care must be taken with a transfer to an Australian QROPS. At the surface everything is positive. For a relatively minor tax on the growth of fund you can receive the benefits as a lump sum tax free. Even large Pension funds, whilst taking several years may be transferred.
In the event of death, your Australian Superannuation fund would be paid to your dependants either as a lump sum or pension. The fund maintains its original value and 100% can be paid to your nominated dependant(s).
On disablement your Australian Superannuation can either be paid to you as a pension or lump sum and is tax free.
There are no death duties in Australia. However, lump sum death payments to Non-Dependants are subject to tax at either 30% pr 15%, with a further 1.5% tax payable on both components as a Medicare Levy by Australian residents only.
One caveat: if there is any possibility of returning to the UK or moving to another jurisdiction then bear in mind:
- It may be possible to transfer your Australian QROPS Pension to the UK depending on your current visa and on the conditions of the QROPS. However there would be a tax charge of 30%.
- By taking the lump sum from Australian Superannuation and then returning to the UK or other jurisdiction, depending on your net assets, the lump sum will become liable to UK inheritance tax or death taxes in the jurisdiction of tax residency.
- Alternatively you can leave your Superannuation in Australia and receive income. Currency fluctuations are likely to change the amount received.
As part of becoming resident for tax purposes in Australia, it is vital to consider your long term residency. If there is any doubt that moving to Australia is not for life, (that is the policyholder and spouse) then take advice in the UK about QROPS.
There are many QROPS available in other jurisdictions which will afford all the benefits of QROPS with none of the long term restrictions that other jurisdictions will impose.
These will allow the total flexibility of capital and income to your personal requirements but will maintain the funds under trust. In many jurisdictions and if you returned to the UK, inheritance tax can be avoided. 100% of your remaining funds on death can then pass to your intended beneficiaries and not the Inland Revenue.
Changes in legislation and the taxation on your worldwide assets are controlled by the laws and legislation of the country in which you are deemed resident for tax purposes. This may be more than one jurisdiction.
The assumptions about the tax position of the plans and recommendations made in this note are based on current law and HMRC practice which may be subject to alteration in the future.
In particular, what assets, gains or income are taxed and the levels of taxation on them are all subject to change. Tax reliefs may also change and their value to you will depend on your individual circumstances and jurisdiction(s).
This does not constitute advice. Any recommendations will be given in writing.
Update: See our January 2009 Newsletter for further information about Pensions transfers to Australia