Final Salary Pensions

[Andrew from Vista Financial]

Many people associate the word “Gold Plated” to Final Salary Pension schemes. Now while I agree that if you are an active member of a Final Salary scheme ie still with your employer and building on your benefits then those words are generally true.

 

For people that have left their employer and have become deferred members of the scheme ie the benefits are frozen, then this isn’t quite true.

 

Remember once you are a deferred member your benefits and the way they increase or not are calculated differently.

 

Most of the time the increases are linked to an index and generally the index is RPI, however since RPI in the UK has been in the negative zone for most of last year does this mean that your Pension entitlements are not growing or reducing?

 

Fortunately the benefits generally would not reduce, also in some cases certainly the Government schemes ie NHS Pensions there is a minimum increase built in if RPI (inflation) is lower. They now have a minimum 2.5% increase built in (it used to be 5%), still not a great increase if you have quite a number of years until retirement.

 

However for some they are not quite so lucky and I have seen this on quite a few occasions of late. There is no minimum built in which means that the benefits accrued up until 2008 are sitting stagnant in the UK.

 

So as Final Salary schemes tend to get good comments via media etc remember this is generally referring to people that are still active members of the scheme.

 

Regards

 

Andy

 

 

(Please note that the above comments are of a general nature only and do not constitute advice)

[Guest n_n_d]

As a temporary visa holder (475), I've been told that I should have transferred my Pensions within 6 months of becoming an Australian tax resident. Was/is that correct ?

[Guest soggy]

As a temporary visa holder (475), I've been told that I should have transferred my Pensions within 6 months of becoming an Australian tax resident. Was/is that correct ?

 

First i'm no expert and there are a few who will give you sound advice on here, but here goes, don't worry there is no rush, what type of pension do you have, private money purchase, final salary and who with. After 6 months you will have to pay tax only on any gain your pension has made while in the UK, it is probably not made much profit recently so no need to panic, and it is better to wait and pay a little tax on some gains than make the wrong decision on transfering your pension to Australia and regret it later.

For most people who are not in very good final salary schemes in the UK and who are confident they will be in Australia for the long term, moving the pension to Australia has many advantages.

 

DID I MENTION I'M NO EXPERT !:)

 

Simon

[Andrew from Vista Financial]

As a temporary visa holder (475), I've been told that I should have transferred my Pensions within 6 months of becoming an Australian tax resident. Was/is that correct ?

 

 

This was one of those areas whereby the ATO could never give a straight forward answer, I think there is some confusion with them at times as the wording Australian resident in the eyes of the ATO is someone that is tax resident.

 

I actually contacted the ATO by phone and letter and asked for a business ruling on this many many months ago and it interpreted as a temporary resident who is a tax resident of Australia would be liable for tax on a transfer.

 

However I was still a bit dubious about their answer and since this I have actually submitted a private ruling for a client who was a temporary reisdent when their UK Pension funds were transferred.

 

The response this time was as follows:

 

From 1 July 2006, temporary residents will not have to pay tax in Australia on most of their foreign income if they:

 

• are an individual who is a resident of Australia for tax purposes, and
  
• satisfy the requirements of being a temporary resident.
  

Under section 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a taxpayer is a temporary resident if:

 

• they hold a temporary resident visa granted under the Migration Act 1958
  
• you are not an Australian resident within the meaning of the Social Security Act 1991 because you are not an Australian citizen or hold a permanent residency visa, and
  
• your spouse is not an Australian resident within the meaning of the Social Security Act 1991.
  

In this case my client was exempt from tax on the growth of their Pension fund transfer as they fitted the requirements as above.

 

Not knowing your circumstances fully I cannot say for sure in your case.

 

I hope this is of some help, please feel free to PM if you have any further questions.

 

Regards

 

Andy

 

 

(Just a note to say that I am not a Tax Adviser and this is general info only not tax advice )

[Andrew from Vista Financial]

First i'm no expert and there are a few who will give you sound advice on here, but here goes, don't worry there is no rush, what type of pension do you have, private money purchase, final salary and who with. After 6 months you will have to pay tax only on any gain your pension has made while in the UK, it is probably not made much profit recently so no need to panic, and it is better to wait and pay a little tax on some gains than make the wrong decision on transfering your pension to Australia and regret it later.

For most people who are not in very good final salary schemes in the UK and who are confident they will be in Australia for the long term, moving the pension to Australia has many advantages.

 

DID I MENTION I'M NO EXPERT !:)

 

Simon

 

 

Not a bad effort Simon and a lot of what you say it spot on. A transfer should not be done purely to alleviate the tax on the growth.

 

Just a couple of points.

 

If someone has moved over since March of last year and had a market linked scheme they may find that the growth has been very high.

March last year was around the bottom point of the markets and globally they have recovered extremely well and by big numbers.

 

If there is tax to pay it can usually be mitigated to a much more managable percentage.

 

There can also be many advantages for people transferring final salary schemes to Australia even if it was a very good final salary scheme they were in. Of course they would need to seek advice to ensure they are fully aware of all the implications invlolved.

 

Overall not bad for someone who is not an "expert" lol!!.

 

 

Andy

[Guest soggy]

Not a bad effort Simon and a lot of what you say it spot on. A transfer should not be done purely to alleviate the tax on the growth.

 

Just a couple of points.

 

If someone has moved over since March of last year and had a market linked scheme they may find that the growth has been very high.

March last year was around the bottom point of the markets and globally they have recovered extremely well and by big numbers.

 

If there is tax to pay it can usually be mitigated to a much more managable percentage.

 

There can also be many advantages for people transferring final salary schemes to Australia even if it was a very good final salary scheme they were in. Of course they would need to seek advice to ensure they are fully aware of all the implications invlolved.

 

Overall not bad for someone who is not an "expert" lol!!.

 

 

Andy

 

Hi,

 

I moved my pension over in June, the timing was partly because I thought things were heading upwards, I had lots of advice and done lots of reserch but it seems it's already out of date. Not and expert but have been accused of being a know all, which is simiar I think:err:. I also think that if your sure your in Australia for good, and your not pretty sure your going to live to a very old age and you have wife and kids you should move your pension over, even if it may mean a not too large loss in you pension fund / income.

 

Who is going to take financial advice from an amature, out of date know all ?

 

Simon:)

[Guest n_n_d]

This was one of those areas whereby the ATO could never give a straight forward answer, I think there is some confusion with them at times as the wording Australian resident in the eyes of the ATO is someone that is tax resident.

 

I actually contacted the ATO by phone and letter and asked for a business ruling on this many many months ago and it interpreted as a temporary resident who is a tax resident of Australia would be liable for tax on a transfer.

 

However I was still a bit dubious about their answer and since this I have actually submitted a private ruling for a client who was a temporary reisdent when their UK Pension funds were transferred.

 

The response this time was as follows:

 

From 1 July 2006, temporary residents will not have to pay tax in Australia on most of their foreign income if they:

 

• are an individual who is a resident of Australia for tax purposes, and
  
• satisfy the requirements of being a temporary resident.
  

Under section 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a taxpayer is a temporary resident if:

 

• they hold a temporary resident visa granted under the Migration Act 1958
  
• you are not an Australian resident within the meaning of the Social Security Act 1991 because you are not an Australian citizen or hold a permanent residency visa, and
  
• your spouse is not an Australian resident within the meaning of the Social Security Act 1991.
  

In this case my client was exempt from tax on the growth of their Pension fund transfer as they fitted the requirements as above.

 

Not knowing your circumstances fully I cannot say for sure in your case.

 

I hope this is of some help, please feel free to PM if you have any further questions.

 

Regards

 

Andy

 

 

(Just a note to say that I am not a Tax Adviser and this is general info only not tax advice )

 

 

Thanks Andy for your response (and the delay in my reply - mad March).

 

I have both a final salary and a small stakeholder pension both with a large insurance company.

 

The way I look at it is considering we are temporary, we could go back to the UK and thus what is the point of being pressured within the 6 month time limit to transfer your pension over.

 

We will be seeking advice within 6 months of obtaining permanent residency to determine our situation.

 

cheers