Benefits and pitfalls in UK pensions transfer

Eligible people transferring pension assets from the UK to an Australian fund may benefit substantially from the Australian superannuation reforms which allow the tax free draw-down of assets and income after age 60, when they become effective on 1 July 2007. 

If the funds remain in the UK, any pension income stream will be assessable as income and taxed at the marginal income tax rates. If left in the UK pension assets may be subject to Australian tax under the Foreign Investment Fund rules.

However, people should seek appropriate advice and, if they transfer assets, to ensure they transfer to an Australian super fund that has been registered by UK Revenue & Customs as a Qualifying Recognised Overseas Pension Scheme. (QROPS)

 The UK Government introduced new rules regarding pension transfers overseas from 6 April this year. If the funds are transferred to a non-registered fund in Australia a UK tax rate of 55% could be imposed on the funds being transferred. A number of superannuation funds have received the UK registration and are therefore able to accept transfers without triggering the UK withholding tax.  (Contact Amazon Financial Group to see which funds qualify).

ING's head of research & technical services Andrew Lowe said that there could be major benefits for Australian permanent residents who have UK pension assets to consolidate them in an eligible Australian fund.

They will not only benefit from the super tax reforms announced in the May budget, but by consolidating their assets in an Australian fund they will be better able to control their investments and access the wider investment choices generally available in Australian superannuation funds.

Depending on the nature of the assets, UK fund and residency requirements the transfer can be somewhat complex and take a number of months, so it should pay to see a financial adviser who understands the rules and can facilitate the whole process.