The UK pension funds provide excellent benefits, but there are significant advantages available by transferring your pension to Australia.

Background

If you worked in the UK you have probably subscribed to a Pension Fund.  You can transfer your pension into the Australian superannuation system; the systems are regulated differently and there are a number of factors to be considered before reaching a decision on whether or not to transfer. Transferring your pension is an important decision, your pension is probably the second largest asset you have after your home.  We certainly recommend you seek financial advice as part of your decision making process.

Type of pensions

UK pensions fall broadly speaking into 2 categories – those where there is a guaranteed outcome for the participant based on final salary and those where contributions are paid to a pension fund, by a company, company and individual or just an individual and where the participants pension on retirement is based on the performance of the investments in the fund. Pensions with a guaranteed pension outcome are known as defined benefit or final salary schemes and are typically found in state occupations or very large private companies. The other schemes are known as defined contribution or money purchase schemes and range from company schemes, through grouped personal pension schemes to personal pension plans taken out by the individual.

Australian Super Advantages

There are a number of advantages available under the Australian Superannuation system that should be considered when deciding whether to transfer, for example:-

• If you leave your pension fund in the UK, you will be entitled to a lump sum on retirement which is completely tax free in the UK but part of which will be taxable in Australia.  Lump sums paid on retirement from Australian superannuation funds are not taxed.
• If your UK pension is used to provide an income in Australia, it will be subject to exchange rate fluctuations.  People living in Australia who rely on UK pension payments have seen their ‘living income’ fall by 24% during the last 3 years.  If you transfer your fund to Australia, you receive a consistent tax free income in retirement after age 60.
• Any pension received from your UK fund is classed as income in Australia and will be taxable regardless of whether you actually bring it into Australia or not, if you remain an Australian resident for tax purposes.
• You can continue to grow your superannuation fund during your retirement in Australia.  In the UK your pension will be a fixed amount with possible inflationary increases.
• On your death the entire unused balance of your Australian superannuation fund can be passed to your nominated beneficiaries in some cases tax free.  This may be a significant benefit when compared with the reduced benefits paid from the UK pension scheme.

Other Factors

You are required to pay tax on the growth within the fund from the date you became tax resident in Australia to the date of the transfer.  This tax can be paid by your superfund at a rate of only 15% rather than your personal tax rate. The payment of this tax is generally a small price to pay for the future tax benefits gained by making the transfer. Your visa status is also relevant when considering whether or not to transfer.  Whilst there are tax benefits to be gained by doing so within 6 months of your arrival in Australia, there are ‘pitfalls’ that are often overlooked. If you are attracted by the advantages of transferring your UK Pension to Australia, seek more information from your financial planner.  

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Source:  UHY Haines Norton Charted Accountants. This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter.  Infocus Securities Australia Pty Ltd strongly suggests that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based upon their own personal circumstances.  Although we consider the sources for this material reliable, no warranty is given and no liability is accepted for any statement or opinion or for any error or omission.  Infocus Securities Australia Pty Ltd ABN 47 097 797 049 Australian Credit License and AFSL No 236523