You plan to retire in Australia. Should you transfer your UK pension to Australia with you?
Yes, you have a few investments and assets, but the bulk of your wealth is sitting in a pension pot in the UK – half a world away. Should you transfer that pension to Australia with you? Note that’s a different question to how do you transfer a pension to Australia – and one that you need to answer first.
So, the answer?
That really depends on your circumstances and objectives. A lot of people opt to transfer their pensions to Australia when they plan to retire there. But, it’s not necessary, and you do have other options. There are a few important reasons that somebody might choose not to transfer their UK pension to Australia, that you should be aware of.
Firstly, let’s make sure you’re clear on your options.
According to the Pension Advisory Service, there are two main things you can do with your pension when moving abroad – to Australia, or anywhere else in the world.
Option 1: Leave your funds in your current UK pension plan
In this case, your money will be held by your private pension provider until you claim it. When that time comes, you can take up to 25% out as a pension commencement lump sum (PCLS) after the age of 55, free of UK tax, however a PCLS is treated as income in Australia and subject to tax at your highest marginal rate of tax in Australia. This may help you will the costs of moving or setting up in Australia but will reduce the income the pension pot provides later on in life.
Keeping the money in the UK however means that you may be subject to some complexities and additional expenditure, such as being exposed to fluctuating exchange rates and commissions.
Option 2: Transfer your UK pension to an approved arrangement in your new country of residence
If you decide you want to transfer your pension to Australia, you’ll need to find Qualifying Recognised Overseas Pension Scheme (QROPS). This is not as simple as it sounds, but Jason can help you with this.
The PAS also notes that if you’re an expat living and working in Australia, then you still have the option to pay into a UK pension scheme and receive tax relief on your contribution for the first 5 UK tax years directly after leaving the UK, but warns there may be very little tax relief.
Also note, this whole article covers transferring private pension funds. You can learn more about claiming state pensions in Australia here if you’re from the UK.
Why transfer your pension to Australia?
As suggested, the main reason many expats who retire in Australia want to transfer their pension to Australia with them, is to reduce the tax paid upon accessing these retirement savings and mitigate the risk of being exposed to fluctuating exchange rates, providing certainty on the Australian dollar value.
No ongoing fees, no forex headaches
Paying commission on holiday funds can feel hard enough, but when someone else is taking a cut of the savings you’ve worked your whole life for, it can get painful very quickly.
It’s not just commission either. The UK and Australia have a lot in common, but they are two separate countries with two separate economies. The value of your sterling can mean more or less Aussie dollars to spend. And that can change day to day. When what you want from your retirement income is stability and security, cross-border fluctuations are not something you want.
As mentioned on the QROPS page, over the past 50 years, the rate has been as high as $3.00 and as low as $1.31.
Peace of mind and convenience
Related to that point, but slightly different; it’s good to be able to put your hands on your money, so to speak. If there was an emergency with your pension income, you wouldn’t want to wait up to 12 hours for someone in a different time zone to pick up the phone.
Once you’ve set up a QROPS it should be easier to handle any issues with your money – and get them sorted much more quickly.
No extra tax hits
This is more of a bonus, but the UK has a double tax treaty with Australia, which means you won’t be paying tax on your pension in two countries.
It all depends on which providers you choose, but you may get more flexibility or choice in a QROPS scheme than you do with a pension trust in the UK.
Why you wouldn't transfer your pension to Australia
Not sure you’ll stay in Australia? Think you might move somewhere else?
If you’re not totally certain about your future plans, you may want to err on the side of flexibility. To do this, it would benefit you to think about countries that have Double Tax Treaties with Australia and even your country of birth.
Additionally, there is a tax to pay if you transfer your UK pension to an Australia QROPS. However, that tax is relatively small and once in retirement, the growth and income drawn from that QROPS is usually free of tax. It is also worth noting that any income drawn from a UK pension by an Australian resident, is taxed as income.
Unsure what the best option is for you? Get in touch with Jason for some tailored advice.
Jason O’Connell is an authorised representative (“AR”) of Shartru Wealth Management operating in Australia under AFSL: 422409.
Information on this website is general advice and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances.