After speaking to ICAEW members in Australia, many have reported finding themselves out of touch about the UK pension system and the implications for them. This is especially true after the amount of change seen with UK pensions over the last 18 months (2015 and 2016).
With this in mind, we've developed a free, comprehensive webinar that will provide a clear explanation of the UK pension system and the implications of recent changes for individuals who are now resident in Australia.
This webinar was recorded live on 20 October 2016 and the 1-2-1 sessions offered during it have been completed. You can find the questions that were asked during the webinar posted further down the page.
Download the Your choices in a world of pension freedom slides now >
Please note: Although accurate at the time of delivery, the webinar does not cover the change to the taxation of QROPS transfers announced in the budget on 8 March 2017. Conscious that this was unexpected, we have produced an updated general webinar on this subject on 6 June 2017 that you can find on our YouTube channel.
If you do have any further questions or are in need of support from CABA, please contact us by calling +44 (0) 1788 556 366 or chat to an advisor online 24 hours a day or emailing us email@example.com.
Questions and Answers
Q: You mentioned that under the New State Pension the full amount is currently £155.65 per week. You also mentioned 10 years as a minimum qualifying period. Does 10 years get you the full weekly amount or do you need more?
To secure the full amount, you would normally need 35 qualifying years. If you have less than 35 years then the pension is pro-rated, so 10 qualifying years would typically secure 10/35 x £155.65 = £44.47 per week. https://www.gov.uk/new-state-pension
The words “normally” and “typically” are used because of the added complication of the existence of Additional State Pension schemes in the UK, such as SERPS, and the fact that an individual could well have been opted out or chose to opt out of these schemes. To this end, each qualifying year could be worth more or less than the notional flat amount.
The best thing to do is secure a forecast to see how much you’ve built up to date based on your National Insurance record.
Q: Can you get more UK State Pension by having more years or by making voluntary NI contributions?
If you return to work in the UK again, you can get more State Pension by adding more qualifying years to your National Insurance record after 5 April 2016. You can do this until you reach the full new State Pension amount or reach State Pension age - whichever is first.
Each qualifying year on your National Insurance record after 5 April 2016 will add about £4.45 a week to your new State Pension.
If you remain resident in Australia, there is no facility to delay taking your state pension to increase the amount you receive as is the case with other countries.
There is a top-up scheme under the old state pension. Until 5 April 2017 you’ll be able to apply to make a ‘Class 3A voluntary contribution’ to top up your State Pension by up to £25 per week, but you must already be entitled to the State Pension and either: a man born before 6 April 1951 or a woman born before 6 April 1953.
However, given that securing additional State Pension in the UK inevitably involves paying in more money, you would need to be certain that this is a better option than any other savings vehicle you could pay into and that would include Australian vehicles. Given the number of options, it would be appropriate here to seek advice before committing to a particular course of action.
Q: If a tax free lump sum is taken under the Pensions freedom legislation in the UK by an Australian resident does this become taxable in Australia?
There is no definitive answer here. HMRC is clear that the Australian Taxes Office does not see a UK tax free lump sum as exempt from tax in Australia in a variety of scenarios, but are unable to quote any hard and fast rules. Inevitably this comes down to your personal circumstances and we would suggest you speak to your local ATO for formal clarification.
Q: What is a QROPS?
A Qualifying Recognised Overseas Pension Scheme, or QROPS, is an overseas pension scheme that meets certain requirements set by Her Majesty's Revenue and Customs (HMRC). A QROPS can receive transfers of UK Pension Benefits without incurring an unauthorised payment and scheme sanction charge (typically 55%). This can be an attractive option for overseas residents with UK pension scheme benefits as this can take the currency risk on their pension payments out of the equation.
A QROPS can be appropriate for UK citizens who have left the UK to emigrate permanently and intend to retire abroad having built up a UK pension fund. Alternatively, a person who is born outside the UK having built up benefits in an HMRC-approved UK pension scheme can move their pension offshore if they want to retire outside the UK.
Q: Am I right in saying there are currently no new Australian QROPS, only ROPS?
A Registered Overseas Pension Scheme (ROPS) has taken the place of QROPS on most HM Revenue & Customs (HMRC) guidance now.
On 2nd July 2015, HMRC ordered all Qualifying Registered Overseas Pension Schemes (QROPS) in Australia to be removed from HMRC’s QROPS list, as they were determined by HMRC to not comply with the new ROPS (Recognised Overseas Pension Scheme) requirements, which do not allow access to benefits below the age of 55.
However, certain Australian schemes have now found a workaround where a transfer to a ROPS can be secured without penalty as long as you are 55 years of age or older and the wider ROPS requirements are met.
The main points to consider regarding ROPS are:
- You must be 55 years of age already
- You must be a maximum of 65, unless you are being employed in Australia
- Transfers from a UK pension fund to an Australian superannuation fund are considered “non-concessional contributions” because they increase the amount in the fund and are not “concessional contributions”, i.e. they are not from a source where the contributor can claim tax relief. For over 65s a transfer is treated as a non-concessional contribution and this would only be allowed if you satisfied the “Australian work test”.
- Until 30th June 2017, you can transfer a UK pension into an Australian ROPS up to A$540,000, then no transfers for two years and A$100,000 per year subsequently. If nothing is done before 30th June, 2017 then the new rules apply: $100,000 per year can be transferred or $300,000 in one year and then nothing for the following two years.
- There is a possibility that you can transfer more than A$540,000 if you elect for any increases in the value of your fund since you became resident in Australia to be taxed in Australia on transfer ( link to relevant ATO document ).
- ROPS providers outside of the European Economic Area have to ring fence 70% of any cash transfer in from a UK fund to pay a pension in retirement.
- Only private pension schemes, SIPPs and final salary schemes that are not “in payment” can be transferred
- UK State pensions and purchased annuities cannot be transferred
- Unfunded public sector pension schemes cannot be moved since April last year, sorry that means anyone who has worked in the NHS, Armed Forces, Civil Service, Police and for Teachers and Fire-fighters
- Funded public-sector pension schemes can be moved, e.g. Local Government Pension Schemes and the Universities Superannuation Scheme.
- Your final retirement destination should be Australia.
Technically speaking, A ROPS can also be a QROPS, providing:-
- All the ROPS rules are met,
- The scheme administrators have self-certified this to HMRC,
- The administrators agree to report information about pension payments, and
- Tell HMRC if the scheme fails to meet ROPS rules at any time.
Warning: Again, given the technicalities surrounding this area and the potential costs and penalties for making the wrong decision, you should take advice from a suitably qualified individual with knowledge of both the UK and Australian governing regimes, before taking action.
Q: HMRC’s list of ROPS seems to be personal superannuation plans only, not corporate plans? I am with BT Superwrap. Do I need to set up a personal SMSF (Self-managed Super Fund) and get it individually recognised by HMRC?
You will see that there is a mixture of Corporate and self-managed arrangements in the current list.
You should check with your Corporate plan provider regarding current ROPS status and whether this is expected to change.
On the basis you should seek advice, your QROPS / ROPS Specialist should be able to recommend an appropriate plan.
Q: So can I transfer pension money from the UK to an Australian pension before the age of 55? And if not, is there any sign of this being revisited by HMRC?
For the under 55’s, seeking pension transfers to Australia, the main options are for you to leave your pension where it is, transfer to a UK SIPP (Self-Invested Personal Pension) or transfer to a QROPS in say Malta, NZ or Hong Kong until you reach age 55.
Arguably the easiest thing to do is leave your pension where it is but clearly currency risk is not then mitigated. However, certain UK SIPP contracts will allow you to hold transferred-in pension savings in Australian dollars.
If your final retirement destination is not Australia, for example, you are thinking of retiring in South East Asia, you could consider a Hong Kong or New Zealand QROPS. This will give you more flexibility, as once you transfer to an Australian Super, it is difficult to transfer out until you are 60 years of age.
Clearly these are only example options and any adviser would consider a much broader set of considerations before making a recommendation.
As far as changes to the law is concerned, if anything HMRC is looking at increasing the minimum age at when you can access pension benefits. This is set to increase to 57 (10 years before State Pension Age) in 2028.
The main concern for regulators seems to be more linked to the requirement for advice when transferring pensions overseas. This is being consulted on currently and although not directly related, this may be an opportunity for individuals to raise access before age 55 as an area in need of further consideration.