Pension Advice For Expats In Australia

Australia Specific Pension Information

KEY POINT: Superannuation Schemes (QROPS status in Australia) – It is not possible to transfer a UK pension to an Australian Superannuation until the member reaches the age of 55.

KEY POINT:  Pensions - For those do that do not transfer within the first 6 months of becoming permanent resident in Australia, there is a 15% tax on the growth of the fund from date of residency to retirement.

In Australia you can only take benefits from your preservation age, whereas in the UK you can take benefits from age 55. Before reaching your retirement age the pension growth is taxed at a concessional tax rate of 15%, this is irrespective of your tax rate.

Australia Tax considerations

Income from a UK pension scheme will be taxed as income , after local personal allowances typically 19% or 32.5%, , whereas an Australian Superannuation scheme can pay lump sum tax free benefits.

The un-deducted purchase price (UPP) which will not be subject to Australian income tax. The UPP calculation is based on your contributions paid into the scheme (which for company pension schemes by be low/zero) divided by your life expectancy at the time of taking benefits. Although there will be a Medicare levy to pay.

KEY POINT: Trusts - If you are an Australian citizen or permanent resident heading overseas, your superannuation remains subject to the same rules, even if you are leaving Australia permanently. This means you cannot access your super until you reach preservation age and retire, or satisfy another condition of release. In other words, there is no real reverse gear after transferring to Australia.

KEY POINT: For those expats who were advised to take out a trust in Malta/Gibraltar or another jurisdiction and put the investment into an Investment Bond for tax efficiency reasons, – you must review this arrangement as there are no obvious tax advantages for a permanent resident in Australia.

Many advisers, outside of Australia, do not have regulatory permission to provide advice in Australia and do not work with regulated Australian advisers. In these cases, many have been advised to move their pensions to other jurisdictions without considering the possible benefits of an Australian Superannuation for a permanent resident that has pensions originally accrued in the UK. We would recommend that has been recommended such a pension, outside of the UK, review their strategy.

For more information go to our Tax Hub

Australia specific Investment Strategies

There is a saying ‘Don’t let the tax tail wag the investment dog’. Investors should be interested in the best strategy to get the highest net return after tax AND fees.

KEY POINT: If the fees for a tax strategy are higher than the tax saved, then it would be sensible to look at taxed options with lower fees.

The adviser should look at alternative strategies, suggest options to discuss with you, finalizing a best solution for you, the client, based on investment, fees and the overall tax liability.

For those with UK preserved pension benefits of over $300,000 AUD, specialised advice is needed and the pensions adviser should work with an Australian adviser to liaise with the Australian Tax Office to ensure that funds are moved across in the most tax effective manner. It is not possible to transfer large sums to Australian Superannuation pensions without sever tax charges, unless local tax advice is given.

If the plan is to move to an Australian Superannuation, it is particularly important that the current pension is not locked into an investment that has exit fees (such as commission paying funds and offshore insurance bonds).

Key issues / concerns 

From 1 July 2017, the annual non-concessional contribution cap reduced from $180,000 to $100,000 per year for the 2017-18 and future financial years. This will remain available to individuals aged between 65 and 74 years old if they meet the local work test.

The non-concessional contributions cap is set at four times the concessional contributions cap ($25,000 for 2017–18) and will increase in line with the indexation of the concessional contributions cap.

Your non-concessional cap is nil for a financial year if you have a total superannuation balance greater than or equal to the general transfer balance cap ($1.6 million in 2017–18) at the end of 30 June of the previous financial year. In this case, if you make non-concessional contributions in that year, they will be excess non-concessional contributions.

If you exceeded your non-concessional contributions cap in the 2016/17 financial year, you must lodge an income tax return for that year, and you may have to pay extra tax.

If you are under 65 years, you may make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year by bringing forward your non-concessional contributions cap for a two- or three-year period. If eligible, when you make contributions greater than the annual cap, you automatically gain access to future-year caps. This is known as the ‘bring-forward’ arrangement.

The non-concessional contributions cap amount that you can bring forward, and whether you have a two- or three-year bring-forward period, will depend on your total superannuation balance at the end of 30 June of the previous financial year.

For 2017–18, to access the non-concessional bring-forward arrangement:

– you must be under 65 years of age for one day during the triggering year (the first year)

– you must have a total superannuation balance of less than $1.5 million at the end of 30 June 2017.

The remaining cap amount for years two or three of a bring-forward arrangement is reduced to nil for a financial year if your total superannuation balance is greater than or equal to the general transfer cap at the end of 30 June of the previous financial year.

What you should be considering 

1. If you are confident enough, then do your research, and place investment directly.
2. If you need assistance, then seek advisers who are regulated themselves in the UK for pensions advice, and / or regulated for INVESTMENT advice in Australia. Consider not only tax efficiency, but also costs!
3. Point 4 – is, make sure the costs are accurate! If you are told the costs are 1% or 1.5% per annum in total and there is no fee up front, then you are probably being lied to in 95% of cases.
4. Don’t get taken in by the great claims over International SIPPs and Insurance bonds or investment platforms that are really investment bonds. These add layered charges and are usually not the best outcome for clients (although we accept that in around 15% of cases they are).
5. Don’t be a sheep. Just because your best friend was advised to do something, never assume this is the right thing. Each person is an individual and requires individual solutions. If your friend were to walk off a cliff, would you follow them?

Our Empirical evidence from clients we have spoken has shown us that many expat sales advisers in the UAE (and other jurisdictions) target Australian residents, just sell a product to their clients for commission and do not provided financial solutions. The product is often  an International SIPP or an investment bond, which may or may not be the best advice but this is not really considered. Don’t listen to them as 85% of the time you would be better off doing something else with your hard earned money or pension.