Whether you were a UK citizen and are now a permanent Australian resident, or you are an Australian citizen returning home, it’s possible that you have savings in a UK pension (super) fund. Now that you’re in Australia, you may have the ability to transfer your UK pension monies to Australia, and this could be more tax-effective when you start a retirement pension.

Why transfer UK pension money to Australia?

Pensions paid from complying Australian superannuation funds are usually concessionally taxed. In contrast, pension payments received from UK super funds are normally taxed in Australia as ordinary income, meaning that your marginal tax rate of up to 46.5% including Medicare Levy may apply. In addition from 1 July 2007:

• Pension payments from a complying Australian super fund would generally be tax-free if you have reached age 60.

If you are under 60, you will usually receive a tax rebate of 15% on pension payments from a complying Australian super fund.

What happens if money is left in my UK pension fund?

• If you take a pension from your UK fund once you retire, this income is normally fully assessable in Australia. This means that you will pay tax on these pension payments at your marginal tax rate, which can be as high as 46.5% including Medicare Levy.
• If you leave your super in the UK, say 20 years, and then move it to an Australian super fund, you'll be taxed on the growth of your super fund assets over those 20 years. So you may save $1000’s in tax by transferring your UK funds as soon as you become an Australian resident.
• Depending on where your super is held in the UK, you may have to pay tax every year as part of the Australian Foreign Investment Fund rules; and
• Your super will still be subject to UK legislation, as well as volatile exchange rates between the Dollar and Pound.

More reasons to transfer UK super to the Australian system.

More investment choice in Australia

An Australian super fund can sometimes offer you a greater choice of investments, while a UK pension fund may give you minimal choice where your funds are invested.

Keeping your super together in one fund rather than 2 or more funds means easier management and fewer fund fees.

Greater protection for your estate and family

You may not know that if your super is based in a UK fund, and you are a resident of Australia, your assets might be lost if you pass away. There is generally no requirement that your assets be distributed to your beneficiaries. However, as an Australian resident with an Australian super fund, your assets can be passed on to your partner or beneficiaries as per your wishes.

After working to accumulate super during your life, who wants to have it lost? It is important that you are aware of the consequences of leaving your super in the UK after moving to Australia.

What happens if money is left in my UK pension fund?

• If you take a pension from your UK fund once you retire, this income is normally fully assessable in Australia. This means that you will pay tax on these pension payments at your marginal tax rate, which can be as high as 46.5% including Medicare Levy.
• If you leave your super in the UK, say 20 years, and then move it to an Australian super fund, you'll be taxed on the growth of your super fund assets over those 20 years.
• So you may save $1000’s in tax by transferring your UK funds as soon as you become an Australian resident.

Depending on where your super is held in the UK, you may have to pay tax every year as part of the Australian Foreign Investment Fund rules; and

Your super will still be subject to UK legislation, as well as volatile exchange rates between the Dollar and Pound.

Important notes

In the UK from 6 April 2006 – UK legislation states that if your super funds are transferred to a non-registered fund in Australia, a UK tax rate of 55% could be imposed on the transferred money.

In Australia from 1 July 2007 – after-tax contributions put into your Australian super fund are proposed to be limited to $150,000 per financial year or $450,000 averaged over three years (for under 65s). From 9 May 2006 to 30 June 2007, after-tax contributions into your Australian super fund of up to $1 million (proposed) may be made without adverse tax implications.

For example, Rose is 61 and moved to Australia 10 years ago. She kept her pension in her UK fund. She is about to retire and considers her options:
She can only take out 25% of her pension fund as a lump sum.
Her withdrawal will be considered ‘normal’ earned income in Australia, without Australian pension tax concessions.
However, Rose’s neighbour, Jonathan, is 60 and when he moved to Australia 10 years ago transferred his UK pension to an Australian fund. Because his super is in an Australian fund –
He can take 100% of his super as a lump sum if he chooses, and the total lump-sum withdrawal is tax-free*.
Because he is over 60, he can access a tax-free pension income*
*Assuming that the proposed changes from 1 July 2007 have been introduced.

If you have a UK super fund and are a Permanent Resident in Australia, speak with Jireh Financial to decide the best strategy for your super.

General Advice Warning
The information provided in this article is general advice only as, in preparing it, we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, objectives and financial circumstances and consult a licensed financial adviser.