Jamesy

Anyone got any advice regarding pensions?

I have a very good final salary pension in the UK, as does my hubby. I am unsure whether we should transfer it to Australia now - or leave it in the UK for the time being. Also, how does the superannuation system work in OZ?

Don

Re: final salary pension. Hard to give advice without knowing more details and you should definitely get good professional advice if you're talking about a significant sum.

But a rule of thumb would be: if your pension benefits are MORE than the value of your fund would buy elsewhere (check it by sourcing annuity tables from companies on the internet), then you'd probably be foolish to transfer the pension elsewhere, as you'd only get the transfer value, which would then not buy you the same benefits you would otherwise have had. Sorry if that's garbled. To explain: you might have risen (maybe quickly) to a reasonably well paid position, so come pension day you'd be entitled (according to your scheme rules, related to the number of years' contributions) to a pension, usually based on your last & best salary earning year. But your pension fund value would not necessarily be enough (without the benefit of being in a final salary scheme) to otherwise buy you the same pension. Hope that makes some sense.

1. Get a statement from the pension administrators which shows a current transfer value of your pension fund and predicted pension at retirement.

2. Compare the predicted pension you will receive at retirement with the annuity you'd receive if you transferred the fund elsewhere. (Simple and ignores possible better growth elsewhere, but most people have a low risk tolerance with pensions.)

Cheers - Don

kevmitch

We looked into this. My wife has a civil service/local government pension. As a (very rough) rule of thumb - if your final salary scheme is based on 80ths as hers is (i.e. for each year of reconable service you receive 1/80th of your 'final' salary), which is then indexed against the inflation rate, you would need a contribution of somewhwere in the order of 12-14% of your salary into a final salary scheme at todays annuity rates for an equivalent benefit.

Therfore, say you had 5 years reconable service, you would need a transfer value of around 60 to 70% (5 times 12-14%) of your final salary to make a transfer into a money purchase scheme worthwhile - you'd be very lucky to get such a valuable transfer.

If you're 'buying into' a new final salary scheme, you need to compare like for like - but remember, your salary is likely to go up faster than the rate of inflation (if indeed your current scheme is indexed).


It also depends on your likely plans - are you definitely going to stay in Australia for life? If not, you may be better off leaving the scheme in the UK and drawing the pension in £s. But then there's the future exchange rate to consider and the performance of the stock market, likely annuity rates when you retire and the price of eggs in Turkey (not really, but who knows?) .......!!! Complicated isn't the word.

As you can see from this, the whole area is very complex, with a lot of 'ifs & buts'. If your pension fund is significant, get professional advice - and avoid the commission based 'advisors' who will almost certainly recommend a transfer!!

Alan Collett

Just a quick word here: the tax issues involved can mean that you could end up with a significant tax liability if you do nothing and leave the fund behind in the UK when you move to Australia - section 27CAA of the Income Tax Assessment Act 1936 is the relevant legislation for those who want to look it up.

Also, a transfer of a pension fund from the UK into an Australian super fund is received as what is called an undeducted pension contribution, the benefit of which is that at retirement you might be looking at tax free capital and/or tax free income from that transfer.

This should be compared with income deriving from a UK fund, which is assessable in Australia if you are resident there at retirement.

As Don and Kevin have indicated, this isn't an issue where you will get a definitive answer on a Discussion Forum => please feel able to email me directly if you would like to explore this more fully.

Best regards.