UK Pension Transfers
It is common practice for UK Citizens to roll over their UK pension plan into an Australian qualifying superannuation fund upon arrival in Australia. These receiving Superannuation Funds were known as QROPS (Qualified Recognised Overseas Pension Schemes). They were given this qualification by the HM Revenue & Customs (ATO equivalent in the UK). Each Superannuation Fund had to qualify with the QROPS qualification in order to receive the transfer from the UK Pension scheme and to avoid penalty taxation.
On April 4 2015, the British government changed the rules to tighten up the criteria for being regarded as a QROPS. The HM Revenue and Customs (HMRC) will tax any roll overs to an unqualified fund at 55%. The HMRC were worried about the ability of Australian Super Fund members to access their entitlements before the age of 55 which is not allowed in the UK.
What happened in Australia?
Australian Superannuation legislation (SIS) includes provisions for conditions of release that allow for access of Superannuation before the age of 55. These special conditions include terminal illness and severe financial hardship. These conditions allowing prospective access to Superannuation prior to the age of 55 have led to the HMRC withdrawing qualifying status to all but one superannuation fund. The number of QROPS funds in Australia went from 1600 to 1 according to one publication. A recent view of the list shows that 2 Government Super Schemes and a handful of SMSFs are eligible.
Why are SMSFs eligible for QROPS?
SMSFs are governed by the Trust Deed of the SMSF. This means that Trust deeds can be written in such a way that will not allow the members to take their entitlements until the age of 55 no matter what the circumstances. This means that SMSF’s with modified trust deeds will be eligible to apply to the HMRC for QROPS and roll over the money without taxation penalties. For members over the age of 55, trust deeds that do not allow access before the age of 55 will not negatively impact on the members ability to access their Super.
What does this mean for UK Pension Transfers into the future?
With the recent changes it now means that Australian residents seeking to transfer their UK Pension will need to consider SMSF as the vehicle to achieve this objective.
If you have a UK pension that you want to bring across to Australia or you know someone who has recently emigrated from the UK, this article may be important for them. Please share this article with your friends and if you need help, please call 1300 693 863 to speak to Supervision.