UK Pension transfers

All transfers from foreign pension (super) schemes will carry implications under Australian taxation law. Not all foreign pension schemes allow transfers to Australian superannuation funds – the pension schemes and laws of individual countries vary greatly and the source scheme will need to be consulted.

UK pensions can be transferred directly to Australian super funds that are Qualifying Recognised Overseas Pension Scheme (QROPS). Specific UK fund rules may apply, so it is important to check requirements with the UK scheme first.

Professional Associations Superannuation Fund, of which RecruitmentSuper is a division, is a Qualifying Recognised Overseas Pension Scheme (QROPS). If you have left the UK permanently, you can transfer your UK pension benefits to RecruitmentSuper and not be subject to the UK ‘unauthorised payments’ tax, provided certain other conditions are met. There are also further considerations for UK pension transfers as UK pension and lump sum rules also apply.

Limits on amounts transferred

Amounts transferred out of UK pensions are subject to a ‘UK lifetime allowance’, which is £1.8m in 2011/2012. Amounts under the UK lifetime allowance are not taxed in the UK (provided all other conditions relating to QROPS transfers are complied with). Amounts in excess of the UK lifetime allowance are taxed at 25% in the UK.

A portion of the transfer will also count towards your non-concessional contributions cap. Please refer to the Superannuation contributions limits section of this factsheet for further information.

Transferring within 6 months of becoming an Australian resident

Generally no tax is payable if you complete a transfer of a UK pension within 6 months of becoming an Australian tax resident. The date on which you became an Australian tax resident is not always easy to determine (refer to the Australian Taxation Office (ATO) for useful information about residency tests) and sometimes transfers of UK pensions can take several months so it pays to move quickly if you are considering a transfer.

Any transfer within this 6 month period will form part of the ‘tax-free’ element of your Australian super account.

Transferring after 6 months of becoming an Australian resident

If you transfer a UK benefit after you have been an Australian resident for more than 6 months, the value of the UK pension at the date of becoming an Australian resident is generally tax free. Any growth in the value of the UK pension from the date you became an Australian resident is taxable. This is commonly referred to as the ‘growth component’.

You can elect to have any ‘growth component’ either:

• Taxed within the receiving Australian super fund at the concessional superannuation tax rate of 15%, or
• Included in your taxable income to be taxed at your marginal rate. If you make this election, no tax will apply on the transfer within the Australian super fund.

You have to actively make an election to have the growth component taxed in the Australian super fund by completing the ATO form Choice to have your Australian fund pay tax on a foreign super transfer.

Otherwise, the ATO expects that you include the amount of any growth component in your income tax return.

Any growth component that you elect to have taxed within the Australian super fund will form part of the ‘taxable’ element of your Australian super account and the balance will form part of the ‘tax-free’ element.

Superannuation contribution rules

Any foreign pension transfer is considered a ‘contribution’’ within the Australian super system and individuals who are transferring funds from overseas must be eligible to make super contributions for the Australian fund to accept the transfer. This means for individuals over the age of 65, they must meet the ‘work test’.

Superannuation contribution limits 

Overseas pension transfers (excluding any ‘growth component’ elected to be taxed within the fund) will count toward an individual’s non-concessional contribution cap.

For 2011/2012 the non-concessional contribution cap is $150,000 per year, or $450,000 over a three year period (using the ‘bring forward’ provisions).

The ability to ‘bring forward’ future year contributions is limited to persons aged 64 or less at 1 July in the relevant financial year, so some individuals may need to consider whether the overseas fund can make partial transfers to meet the contribution cap. Any amounts received over the fund-capped contribution limit will be refunded back to the UK Pension fund.

Individuals with overseas entitlements close to the Australian contribution cap should also consider the potential impact of exchange rate fluctuations.

In order to accept non-concessional contributions, including overseas transfers, you must provide your Tax File Number within 30 days of the transfer being received.

After the UK benefit has been transferred

All QROPS are required to report back to the UK Government in relation to transactions that relate to UK transferred benefits.

These requirements relate to persons who:

• Is a tax resident in the UK when the payment is made, or
• Has been a tax resident in the UK in any of the five tax years preceding the tax year in which the payment is made.

If the above conditions are not relevant, then no reporting is required after 10 years. Reporting is required for pension commencements, cash withdrawals and transfers to other super funds (rollovers). Importantly, where a person’s account is comprised of both UK transferred amounts and other amounts (including earnings since transfer), any payments are considered to be made from the UK transferred amount first for reporting purposes.

Payments made to a person considered to be a UK tax resident (based on the above conditions) or to a non-QROPS fund are generally considered ‘unauthorised payments’, and are subject to UK tax of up to 55%.

Example

Sylvia is a member of RecruitmentSuper and has an existing balance of $50,000. Sylvia transfers her UK entitlement of $20,000 into RecruitmentSuper. Shortly thereafter, Sylvia withdraws $10,000 from her account. The entire $10,000 is required to be reported back to the UK government as being sourced from the UK benefit and is potentially subject to UK unauthorised payments charges of 55% or $11,000.

Requirements to transfer any UK pension benefit

You generally need to provide evidence of the following to your UK pension fund.

• You have permanently departed the UK with no intention of returning to work or retire in the UK;
• You are employed or self-employed in Australia;
• You are an Australian resident for tax purposes;
• No part of the UK benefit has been used to commence paying a pension;
• Payment will be made directly from the UK scheme to RecruitmentSuper;
• Australian tax (in line with Australia’s double taxation agreement with the UK) will apply to the benefits, along with preservation and conditions of release rules.

How to arrange a transfer

Transferring benefits from a UK pension involves processes both in the UK and here in Australia. It can take from six weeks to 12 months.

The first step is to contact us, and we’ll step you through the process.

Our dedicated team of Member Services Consultants* can provide assistance with these transfers. Email memberservices@recruitmentsuper.com.au or call 1300 304 000 and we’ll put you in touch with your local Member Services Consultant.

More information

As transfers can involve complex taxation and financial planning issues, it is worth seeking independent financial advice to determine whether it is in your best interest to do so.

*PASL has engaged eo Pty Ltd (ABN 53 000 013 276 AFSL 232501) to provide general financial advice, marketing and sales services for PASL. Financial Services provided by eo Pty Ltd are provided under eo Pty Ltd’s Australian Financial Services Licence.