UK Pension Fund Transfers - The Contributions Tax Disaster
With many migrants continuing to come to Australia from the UK and wanting to transfer their private pension funds there have been some financially disastrous consequences for some migrants.
UK Pension Rollover Red Tape
The focus for many people with private UK pension funds is to meet the requirements, which the UK Government puts on them to be able to transfer their private pension funds out to Australia.
The UK Government do not currently allow people to transfer their pension funds out of the UK unless they are going to what the UK Government call a QROPS approved Super Fund - which meets the Government's requirements (mainly in terms of access conditions to the funds). There are also issues relating to the timing of access and tax impacts thereon.
So its understandable this gets all the attention - namely - how do I meet the UK Government requirements for access and minimise UK tax impacts.
Why Transfer Private UK Pension Funds To Australia?
There are many obvious motivations for this including:
? Easier administration for people not returning to the UK regularly
? A better fit of investment strategy to their personal circumstances where they are incurring living costs in Australia and Australian Currency.
In fact whether its right to transfer your UK Pension Fund to Australia is a matter for consideration in the light of each person’s individual circumstances. We have seen some situations where it is better to retain the funds in the UK pension scheme.
UK Pension Transfer to Australia Possible?
It is perfectly possible to have your funds transferred to the Australian Super Fund, even to a Self Managed Super Fund. Obviously you should get advice about this process. How long you have been out of the UK is an issue that may impact.
Traps of UK Pension Transfers
One of the traps however is that the UK fund managers need to be carefully advised as to when you sell your assets to cash - because only cash can be transferred.
There are risks no matter what you do - if markets go down you would be better to have required the fund in UK go to cash in preparation for the transfer early. If markets go up you would be better to delay this as long as possible. And then you've got to try to get back into the assets that are appropriate to your investment plan at the Australian end...
Nasty Surprise
With all an investor's focus on meeting the UK Government's requirements, and managing the investment risks of shifting to cash and then back out of cash, it's easy to see how people have overlooked the fact that there are actually Australian Government requirements in regards to UK Pension Transfers received!
The biggest risk is that people just don't seem to realise the UK Pension Funds transferred, albeit called Rollovers by the UK Government - are NOT technically 'Rollovers' under the Australian Superannuation regulatory framework - they are treated as Contributions and are subject to the Contribution rules accordingly.
If you transfer in from UK Pension Funds amounts above your contribution thresholds or in violation of contribution requirements including work tests and age based limits - you will attract excess contribution penalties - which can be very large.
In short - get advice about your situation pertaining to both UK AND Australian requirements for transferring in UK Pensions.