Are you eligible to transfer your UK pension?
If you have a UK pension and now live in Australia, you may be able to transfer some or all of your eligible pension benefits to an Australian superannuation fund.
However, not every UK pension can be transferred and eligibility is not determined by one factor alone.
The type of pension you hold, your age, the rules of your UK pension scheme, the Australian receiving fund, UK and Australian tax rules and your individual circumstances all need to be considered.
Importantly, being eligible to transfer does not necessarily mean that transferring is the right option for you.
What type of UK pension do you have?
The first step is identifying the type of pension you hold.
Defined contribution pensions
Defined contribution pensions, including many personal pensions, workplace pensions and SIPPs, may be transferable, subject to the rules of the UK pension provider and the requirements applying to the Australian receiving fund.
The value available for transfer will generally depend on the value of the investments held within the pension at the time the transfer is completed.
Defined benefit pensions
Defined benefit pensions, sometimes referred to as final salary or career-average pensions, provide benefits calculated under the rules of the pension scheme rather than simply providing an investment account balance.
Some funded defined benefit schemes may permit transfers.
However, transferring generally involves giving up the guaranteed pension benefits provided by the scheme. The benefits being surrendered, the transfer value offered and the individual’s circumstances therefore need to be carefully assessed before any transfer is considered.
Public-sector pensions
Some UK public-sector pension schemes are unfunded and are subject to restrictions that prevent transfers to defined contribution pension arrangements.
Other public-sector arrangements may be funded and can operate differently.
Eligibility therefore depends on the particular scheme rather than simply whether someone has worked in the UK public sector.
UK State Pension
The UK State Pension cannot be transferred to an Australian superannuation fund.
Depending on your circumstances, you may still be entitled to receive UK State Pension payments while living in Australia.
Does age affect eligibility?
Yes. Age can be particularly important when considering a direct UK pension transfer to Australia.
Australian superannuation funds wishing to meet the relevant UK requirements for receiving UK pension transfers generally need to satisfy specific conditions, including restrictions relating to when members can access transferred benefits.
Age must therefore be considered alongside:
- The requirements of the Australian receiving fund.
- Australian superannuation contribution and acceptance rules.
- The rules of your UK pension scheme.
- UK overseas-transfer requirements; and
- Your personal circumstances.
There is no single age test that determines whether every UK pension can be transferred to Australia.
Does the Australian super fund need to be a ROPS?
Where a UK pension is being transferred directly to an Australian superannuation fund, the receiving arrangement will generally need to satisfy the relevant UK requirements for an overseas pension transfer.
HM Revenue & Customs maintains a Recognised Overseas Pension Schemes (ROPS) notification list of schemes that have notified HMRC that they meet the relevant conditions.
Appearance on that list does not, by itself, guarantee that an individual transfer will qualify for the intended UK tax treatment.
Both the receiving fund and the proposed transfer need to be assessed before proceeding.
Are there limits on how much can be transferred?
The amount that can practically be transferred to Australian superannuation can be affected by several different rules rather than one universal transfer limit.
These can include:
- Australian superannuation contribution rules.
- The receiving fund’s acceptance requirements.
- Your age and circumstances.
- The value and type of your UK pension.
- Previous contributions or transfers.
- Australian tax considerations; and
- UK tax rules, including the Overseas Transfer Allowance and Overseas Transfer Charge.
A large UK pension therefore requires individual assessment before determining whether, when and how much could potentially be transferred.
What is the Overseas Transfer Allowance?
The UK Overseas Transfer Allowance (OTA) applies to certain overseas pension transfers.
For most individuals, the standard Overseas Transfer Allowance is currently £1,073,100, although the amount available to an individual can differ depending on previous pension events and protections.
Where a relevant transfer exceeds an individual’s available Overseas Transfer Allowance, a 25% Overseas Transfer Charge may apply to the excess.
The Overseas Transfer Charge can also arise in other circumstances, so the UK tax position should be established before an overseas pension transfer proceeds.
What about Australian tax?
A UK pension transfer to Australian superannuation is not automatically tax free.
The Australian tax treatment can depend on factors including how long you have been an Australian tax resident and the growth in the foreign pension during the relevant period.
Where an individual has been an Australian tax resident for more than six months, part of the transfer may constitute applicable fund earnings (AFE).
Depending on the circumstances, it may be possible for an election to be made for applicable fund earnings to be included in the assessable income of the receiving Australian complying superannuation fund.
The Australian tax consequences should therefore be established before completing the transfer.
Can I transfer my entire UK pension?
Potentially, but this cannot be determined simply from the value of the pension.
Whether all, part or none of a UK pension can be transferred to Australia will depend on the pension itself and the interaction between UK pension rules, UK taxation, Australian superannuation rules, Australian taxation and the requirements of the receiving fund.
In some circumstances a transfer may need to be structured over time. In others, transferring may not be available or may not be appropriate.
We therefore do not recommend assuming that an entire pension can be transferred until the individual circumstances have been assessed.
Being eligible does not mean you should transfer
This is an important distinction.
A UK pension may technically be eligible for transfer while retaining it in the UK remains the more appropriate option.
Before making a recommendation, considerations can include:
- Guaranteed benefits that would be surrendered.
- Existing pension income and options.
- Investment risk.
- Fees and charges.
- UK and Australian taxation.
- Currency exposure.
- Retirement income requirements.
- Access to benefits.
- Death benefits and estate planning; and
- Your long-term plans in Australia.
The objective should not simply be to establish whether a pension can be transferred, but whether transferring is appropriate when compared with the alternatives.
Find out what options are available
If you live in Australia and have a UK pension, an initial consultation can help us understand your circumstances, identify the options that may be available and determine whether specialist advice may be appropriate.
There is no obligation to proceed following an initial consultation.
