If you have worked in the UK and now live in Australia, you may have accumulated pension benefits that form an important part of your retirement planning.
Depending on the type of pension you hold and your individual circumstances, you may have several options. These can include retaining your pension in the UK, consolidating UK pension arrangements or, where permitted and appropriate, transferring eligible benefits to Australia.
At The UK Pension Experts, we specialise in helping people living in Australia understand their UK pension benefits and how they interact with Australian superannuation.
The objective is not simply to determine whether your pension can be transferred. It is to establish whether retaining, transferring or restructuring your pension is appropriate for your circumstances.
Understanding Your UK Pension
Before considering a transfer, it is important to establish exactly what type of UK pension you hold and the benefits available under the existing arrangement.
UK pensions can include:
- Defined contribution workplace pensions.
- Personal pensions.
- Self-Invested Personal Pensions (SIPPs).
- Defined benefit or final salary pensions.
- Career-average pension schemes.
- Funded public-sector pension schemes.
- Unfunded public-sector pension schemes; and
- The UK State Pension.
Different pension types have different benefits, restrictions and transfer options.
Defined Contribution Pensions
Defined contribution pensions generally provide an accumulated fund value rather than a guaranteed level of retirement income.
Depending on the pension provider and your circumstances, an eligible defined contribution pension may potentially be transferred to an Australian superannuation fund that meets the relevant requirements.
Before considering a transfer, it is important to compare the existing UK pension with the available alternatives.
Considerations can include investment options, fees and charges, access to benefits, taxation, currency exposure and your longer-term retirement objectives.
Defined Benefit and Final Salary Pensions
Defined benefit pensions operate differently.
Rather than simply providing an investment account balance, these schemes generally promise retirement benefits calculated according to the rules of the pension scheme.
Benefits can include guaranteed retirement income, inflation protection and benefits for a spouse or other eligible beneficiary.
Some funded defined benefit schemes may permit a transfer. However, transferring generally involves permanently giving up the guaranteed benefits provided by the scheme.
The transfer value alone therefore does not determine whether transferring is appropriate.
The benefits of retaining the pension should be carefully compared with the potential advantages, disadvantages and risks of transferring.
Can Every UK Pension Be Transferred to Australia?
No.
Whether a UK pension can be transferred depends on the type of pension, the rules of the UK scheme and the circumstances of the individual.
Defined contribution pensions and some funded defined benefit arrangements may potentially be transferable.
The UK State Pension cannot be transferred to an Australian superannuation fund.
Certain unfunded UK public-sector pension schemes are also subject to restrictions that prevent transfers to defined contribution arrangements.
Even where a pension is technically transferable, the proposed Australian receiving arrangement must also satisfy the relevant requirements.
Transferring to an Australian ROPS
For certain UK pension benefits to be transferred directly to an Australian superannuation fund with the intended UK tax treatment, the Australian receiving arrangement will generally need to meet the relevant UK requirements.
HM Revenue & Customs maintains a Recognised Overseas Pension Schemes (ROPS) notification list containing overseas schemes that have notified HMRC that they meet the relevant conditions.
However, inclusion on the HMRC list does not itself guarantee that a particular transfer will qualify for the intended UK tax treatment.
The receiving arrangement, the pension being transferred and the member’s individual circumstances all need to be considered.
Does Age Affect a UK Pension Transfer?
Yes, but age is only one part of the eligibility assessment.
The interaction between UK pension rules and Australian superannuation requirements means that age can affect whether and how a transfer may be undertaken.
Other considerations include:
- The type of UK pension.
- The rules of the UK pension scheme.
- The requirements of the Australian receiving fund.
- Australian contribution and fund-acceptance rules.
- UK overseas-transfer requirements; and
- Your individual circumstances.
There is therefore no single age test that determines whether every UK pension can be transferred to Australia.
UK Tax Considerations
UK tax rules can apply when pension benefits are transferred overseas.
One important consideration is the Overseas Transfer Allowance (OTA).
For most individuals, the standard Overseas Transfer Allowance is currently £1,073,100, although an individual’s available allowance can differ depending on previous pension events or protections.
Where a relevant overseas 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. The UK tax treatment should therefore be established before an overseas pension transfer takes place.
Australian Tax Considerations
A UK pension transfer to Australian superannuation should not be assumed to be tax free.
The Australian tax treatment can depend on the circumstances and timing of the transfer.
Where an individual has been an Australian tax resident for more than six months, part of a foreign pension transfer may constitute applicable fund earnings (AFE).
Broadly, applicable fund earnings relate to growth in the foreign pension interest during the relevant period of Australian tax residency.
Depending on the circumstances, an election may be available for applicable fund earnings to be included in the assessable income of the receiving Australian complying superannuation fund.
Australian contribution rules and the receiving fund’s ability to accept the transfer must also be considered.
Currency Considerations
Currency can be an important consideration for people who have retirement savings in the UK but expect to spend their retirement income primarily in Australia.
A UK pension may expose an Australian resident to movements between sterling and the Australian dollar.
Converting pension assets from GBP to AUD can remove subsequent GBP/AUD exposure on the amount converted, but exchange-rate movements before conversion can affect the Australian-dollar value ultimately received.
Currency should therefore be considered as one part of the overall retirement strategy rather than as a reason in itself to transfer a pension.
What About the UK State Pension?
The UK State Pension is separate from workplace and private pension arrangements and cannot be transferred to Australian superannuation.
People living in Australia may still have an entitlement to a UK State Pension depending on their National Insurance record and circumstances.
The State Pension should therefore be considered separately when assessing overall retirement income.
Should I Transfer My UK Pension to Australia?
This is different from asking whether your pension is eligible for transfer.
A pension may be transferable while retaining it in the UK remains the more appropriate option.
A comparison should consider factors including:
- Existing guarantees and pension benefits.
- Expected retirement income.
- Investment options and investment risk.
- Fees and charges.
- UK and Australian taxation.
- Currency exposure.
- Access to benefits.
- Death benefits and estate-planning considerations; and
- Your long-term residency and retirement objectives.
For defined benefit pensions in particular, the value of guaranteed benefits being surrendered needs careful consideration.
For some people, transferring eligible UK pension benefits to Australia may be appropriate. For others, retaining the pension in the UK may provide the better outcome.
Specialist UK and Australian Pension Advice
Cross-border pension planning requires an understanding of both UK pension arrangements and the Australian superannuation environment.
Our advice process can help you:
- Identify and understand your UK pension benefits.
- Establish whether your pension may be transferable.
- Understand the options available under the existing scheme.
- Consider the relevant UK and Australian tax implications;
- Compare retaining your pension with available transfer alternatives; and
- Implement an agreed strategy where appropriate.
The recommendation will depend on your pension benefits, financial circumstances and retirement objectives.
Discuss Your UK Pension Options
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.
