Annus Horribilis for UK Pension Transfers

[Andrew from Vista Financial]

Well it seems that between HMRC and the Liberal/National Coalition they really do not want UK expats transferring their pensions from the UK to Australia.

 

Part one of this story was brought about by changes out of the UK effective March and 6 April 2015 as follows:

 

 

 

• UK Pensions that fell into the category of UK government un-funded defined benefit schemes (these are schemes such as the NHS and the Police Pensions) could no longer be transferred to schemes that offer flexible benefits - Ban on UK pension transfers
  

 

 

Typically in Australia all of the QROPS schemes available at that time offered flexible benefits thus resulting in people with these pensions not being able to transfer them to Australia.

 

 

 

• The UK introduction of the ‘Pensions Age Test’ which essentially resulted in Australia losing its QROPS status overnight (this only became apparent on the release of the 1 July 2015 ROPS list - Australia lose QROPS status)
  

 

 

Since then however there have been avenues for certain people to transfer pensions to Australia - Pension Transfers for over 55s

 

Since around October last year limited direct transfers to Australia have been taking place for people who are over age 55 and who establish a SMSF and have it QROPS registered.

 

However Part two of this saga was brought about at the Australian budget last night when Treasurer Scott Morrison announced effective 7.30pm that evening.

 

 

 

• The current non-concessional contributions (NCC) limits (NCCs are in the main what UK transfers are classified as) would be removed and replaced with a lifetime non-concessional contribution (NCC) cap of $500,000.
  

 

 

Further all NCCs made on or after 1 July 2007 will count towards this lifetime cap (in other words contributions made retrospectively will be included towards this new cap).

 

Whilst it is too early to be able to strip back these proposals and be able to understand all of the implications that exist it does certainly look like it will limit further the ability for people to make a transfer directly to Australia from their UK pension without possibly incurring a substantial UK or Australian tax penalty.

 

So the criteria currently for anyone considering a direct UK pension transfer to Australia is:

 

 

 

• Be over age 55;
  
• Have established or will establish an Australian SMSF (that restricts membership to age 55s+)
  
• Obtain QROPS status for the SMSF
  
• Transfer in no more than $500,000 as a Non-Concessional Contribution (including any NCCs made since 1 July 2007).
  

 

 

 

Please note though that having more than $500,000 does not automatically mean that a transfer cannot happen there is more to it than this and it could still be possible to transfer directly to Australia (if over age 55) as it will also depend on your length of residency.

 

This area has always been extremely specialised and complex but now more so than ever before.

 

Regards

 

Andy