Major issues with UK Pension Transfers to Australia from June 2015
UK Government (HMRC) halts all transfers to Australian QROPS Retail funds from April 2015
On 25 June 2015, HMRC (Her Majesty’s Revenue & Customs announced to Australian Treasury that Australian super funds would not be able to comply with the new QROPS requirements & consequently on 1 July 2015, HMRC published an updated list of ROPS (Recognised Overseas Pension Schemes) resulting in all except one Australian super fund (the Queensland Government employee’s fund – unfortunately this fund is not available to individuals outside of the Queensland Government) being excluded. In total, 1653 Australian QROPS were delisted from 1 July 15. Consequently a hold has been placed on all UK pension transfers to minimise potential penalties for customers.
How did this (mess) come about?
Bay way of background, at the end of 2014 the UK Government started a consultation process about a proposed amendment to the UK Pension Regulations. The proposed amendment stated that in order for an Australian super fund to be able to apply for QROPS status, any benefits payable to the member under the scheme are payable no earlier than they would be if in member was in the UK, ie. normal minimum pension age of 55.
HMRC’s issue with Australian super funds is that Australian law allows super payments (in limited circumstances) to members aged under 55, including financial hardship, compassionate grounds, etc. This meant that potentially Australian funds were non-compliant under this new requirement.
HMRC wrote to the Australian QROPS funds on 17 April 2015 and asked if they could comply with the pension release requirement (age 55).
A number of the large Australian retail ex-QROPS super funds answered in the affirmative believing that by amending their superannuation trust deed, they would be able to comply.
Despite these attempts to comply with the UK’s new pension release requirement, all Retail Australian QROPS funds received a letter dated 29 June 2015 saying that their fund ceased to be recognised overseas pension scheme as from 6 April 2015. Thereafter on 1 July 2015, HMRC removed all relevant Australian QROPS from the list except for one.
HMRC wrote to a number of the large Australian retail ex-QROPS super funds in July 2015 stating, “In HMRC’s view, no Australian schemes can meet the UK Pension Age Test – introduced on 6 April 2015”.
We made enquiries direct to HMRC at a senior level and unfortunately their response was unconstructive indicating that it was Australia’s problem; not the UK’s. Their feedback suggested that a solution to this impasse would be for Australia to amend its superannuation laws (Superannuation Industry Supervision (SIS) Act; a requirement which we believe will never happen.
Nevertheless there are now hundreds of Australian Self Managed Super Funds (SMSF) on HMRC’s QROPS list. For these SMSFs to gain UK QROPS status, they are required (via the SMSF Trust Deed) to restrict membership to members over 55 years of age.
There is one Australian Retail QROPS which similarly restricts membership to individuals over 55 years of age.
Option – Self Managed Super Funds (SMSF) – Over 55:
For clients aged over 55, we can establish a specialist SMSF which will restrict membership to members aged over 55 and then apply to HRMC to gain QROPS approval. Thereafter we can then facilitate the transfer of the UK Pension direct to the SMSF.
Please note that the ATO recommends a minimum balance for SMSFs of AUD200,000 plus, so this option should only be considered for transfers over GBP100,000, or if husband & wife’s (also aged 55 or over) combined transfers are over GBP100,000, or if the client’s (including spouse – also aged 55 or over) UK Pension & Australian super is cumulatively over AUD200,000.
Please contact me to discuss if you meet the above criteria.
Option – Transfer first to New Zealand, Malta or Gibraltar?
Post July 2015, this was an option for UK Pension holders; however in March 2017, HMRC announced that if If you do not currently reside in the same country as the QROPS fund you transfer too, then the Pension will be subject to a 25% Overseas Transfer Charge (tax).
Consequently this option is now effectively closed.
Option – If you are aged below 55 years and have a UK Defined Benefit / Final Salary Scheme
You can consider transferring your UK Defined Benefit into a UK SIPP until you turn 55 years of age, then you will be eligible to transfer the monies in the UK SIPP to an Australian QROPS – Click here
