If your retirement dream is living a laid-back Aussie lifestyle, you’ll need to get up to speed with QROPS, Australian superfunds and all the rules and regulations required to transfer your UK pension fund to Australia safely and securely.
Transferring to other countries: Canada | New Zealand | Malta | Spain | Portugal
Is it possible to transfer my pension to Australia?
If you’re planning to retire to Australia, it can make sense to transfer your UK pension(s) there.
This is possible provided that you’re transferring your UK personal pension funds to an Australian pension scheme which qualifies as a QROPS – a qualifying recognised overseas pension – and those pension funds are a minimum of £20,000.
However, you cannot move a UK pension to an Australian QROPS until you’re 55.
This is due to Australian superannuation schemes that allow people to have access to their pension, which is not permitted under QROPS rules.
What is a QROPS?
A qualifying recognised overseas pension scheme – QROPS – is an overseas pension scheme that HMRC recognises as eligible to receive transfers from registered pension schemes in the UK.
Introduced in 2006, QROPS is designed especially for UK residents living overseas who intend to remain outside the UK permanently.
If you transfer to an overseas pension which isn’t QROPS, then usually it’ll be classified as making an unauthorised payment from your pension, which could result in a tax charge of 55% with the possibility of additional penalties.
A transfer like this is also unlikely to be regulated and may leave you without any way to claim compensation.
What are all the rules for transferring a pension to Australia?
The following types of UK pension arrangements can be transferred to an Australian QROPS:
- An occupational pension scheme
- A defined benefit scheme
- A defined contribution scheme
- A Small Self-Administered Scheme (SSAS)
You’re not allowed to transfer:
- UK state pension
- Unfunded civil service pensions, which include teachers, fire fighters, NHS workers, police and armed forces
Since 9 March 2017, transfers to QROPS have attracted a 25% tax charge – but there are exceptions. You’ll still be able to make a transfer tax free if one of the following applies:
- You’re resident in the country where the QROPS receiving your transfer is based
- The QROPS you’re transferring to is an occupational pension scheme and you’re an employee of a sponsoring employer under the scheme
- The QROPS you’re transferring to is an overseas public service scheme and you’re employed by an employer that participates in that scheme
- The QROPS you’re transferring to is a pension scheme of an international organisation and you’re employed by that organisation
If the scheme you’re transferring out of does not receive the correct paperwork then a charge of 25% on transfer is required and you’ll have to apply for a refund via your scheme at a later date.
Also note that there’s a lifetime allowance of £1 million for pension savings in the UK.
If you’re under 75 and transfer out of UK registered pensions into a QROPS, the value of the transfer will be measured against the lifetime allowance and, if it’s in excess of your allowance, this could result in a tax charge of 25% on the excess.
Conversely, if you’re under 75 and transferring into a UK registered pension from a QROPS, this will usually result in an enhancement to your lifetime allowance.
What are the benefits of transferring my pension to Australia?
The first benefit is that having your retirement savings housed in your country of residence makes them much easier to manage.
You’ll also have a better idea of how much money you’ll get without fluctuating currency conversion values.
Receiving income in two different countries and keeping track of any tax and regulation changes can be tricky.
For example, if you started withdrawing funds from your UK pension while living in Australia, you’d need to apply to HMRC for a double taxation agreement or you could end up with a tax bill in both countries.
Other benefits to consider include:
- You can consolidate all of your UK pensions into one manageable pension plan
- You’ll avoid any fees associated with accessing your UK pension overseas, including something called trail commission
- The general management fees for the pension you transfer into could be lower than those you pay in the UK
- If the transfer occurs within six months of you becoming an Australian resident then the transfer of funds could be tax-free
- From the age of 60 where the foreign super transfer has been taxed at 15%, the income benefits are generally tax-free
- You may flexibly draw your pension benefits during retirement
- Your UK pension funds will not be subject to UK income tax charges upon death
What are the drawbacks to transferring my pension to Australia?
Only certain types of Australian superannuation funds are approved by HMRC as suitable for a UK pension transfer.
Australian superannuation funds, or ‘supers’ as they’re commonly known as, are a pension fund that all Australian employers must contribute to for each of their employers.
You’re able to access your super retirement fund once you reach the age of 60 and have retired from work. Or, when you’re 65 and a pensioner, even if you’re still in employment.
In order to transfer your UK pension to an Australian superannuation fund, it must be on the QROPS list. In addition:
- If you’re under 55 you cannot usually transfer your UK pension to Australia. Under exceptional circumstances where this might be possible, you’ll likely face high charges
- If you don’t make the transfer within six months of moving to Australia, you could face additional taxes
- Defined benefit pension schemes, often also known as final salary schemes, come with very specific and often generous benefits, which may mean a transfer could see you losing out on some guaranteed benefits upon retirement
Is transferring my pension to Australia really a good idea?
Are you definitely going to live out your retirement in Australia?
If there’s a chance that you might return to the UK, then transferring your UK pension to an Australian scheme might not be the right decision.
Retiring to Australia is a once-in-a-lifetime venture and undertaking such a big life change doesn’t come without risk.
However, an experienced financial adviser who has direct knowledge of the practicalities of transferring assets and navigating the tax and pensions landscape can provide you with all the information you need.
By getting advice, you’ll have peace of mind that you’re making the right decision for your immediate needs and your long-term financial future.
How do I transfer my pension to Australia?
If you’re considering transferring your UK pension to an Australian scheme, it’s essential you understand every detail and rule relating to your existing pension, the HMRC QROPS rules and your new Australian superfund.
Otherwise, you could end up losing more money to charges and taxes than you expected or your pension may end up in a scheme that’s not suitable for your future retirement needs.
These are the steps to follow:
- Contact your pension provider to find out its rules on transferring your pension out of the scheme and into an overseas fund
- Consult the HMRC list to find a QROPS Australian superfund that accepts transfers from the type of UK pension you hold
- Ensure you’re aware of all the rules relating to the transfer, charges, fees, taxes, time scales and financial limits
- If everything is in order, you then sign the paperwork to allow the UK to Australian pension transfer to happen
What about my state pension?
Receiving your state pension shouldn’t cause any difficulties if you retire to Australia.
You can either keep your UK account and have your state payments paid into it, or have it paid into an Australian bank account.
What other things should I consider about my finances when moving to Australia?
It’s recommended to get expert advice on all aspects of your financial situation – from life cover and health insurance to minimising inheritance tax and setting out your will and power of attorney.
If you’re thinking of buying a property and you aren’t an expat Australian, you would be classed as a foreign investor, which is more restrictive and expensive for property ownership, so it’s a good idea to seek expert mortgage advice.
When it comes to the taxes you'll pay, this depends on your legal status. if you’re a permanent resident of Australia, you’re considered a full citizen and taxed as such.
However, you won’t be taxed on any non-pension income you make outside of Australia, such as investment capital growth or dividends, but you could pay capital gains tax on any Australian assets you acquire while living there.
An experienced financial adviser can address all your concerns and answer any questions you may have to help you fulfil your dream of retiring to Australia.
If you found this article interesting, you might also find our article on pension recycling informative, too.
