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Ask an Adviser - UK Pensions and QROPS Changes

Q&A Superannuation, Aged Care 17 Nov 2017

My parents have lived in Australia for 20+years and the whole time drawing a UK pension. Is it possible to transfer it out here? What do we need to be aware of when considering this? I keep seeing the term 'QROPS'. What is this, and is it important?

2 Answers

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Hi Richard,

Great question, and it will relate to many as a lot of people have UK pensions from when they’ve worked over there.  While this will give you a quick glimpse of some of the issues you will come across, a thorough answer to your question will require deeper investigation and potentially pages of explanation.  QROPS stands for Qualifying Recognised Overseas Pension Scheme, and is the reference used by Her Majesty’s Revenue and Customs (HMRC) for pension and superannuation funds that meet specific rules which allow them to accept money from UK pensions. 

In April 2015, changes were made to the QROPS rules which made it a lot harder to bring pension funds over to Australia.  Australia superannuation law states that funds need to be available for hardship payments prior to retirement.  This makes most funds non-compliant with the QROPS rules so a specially drafted trust deed is usually needed which does not allow this.  As a result of this, the list of approved QROPS funds on the HMRC dropped dramatically.  A quick scan of the list of approved Australian funds will show you that it mainly consists of Self-Managed Superannuation Funds. 

As with any “manufactured” tax environment, there are a multitude of different rules and regulations, so without a thorough examination of your parent’s pension, it’s just not possible to give a black and white yes/no to being able to bring it over.  UK pensions and QROPS rollovers are a very specialised field and advice really should be done one on one.  We’d need to explore if it’s one single pension or multiple ones.  Which ones are paying an income stream, which ones are not.  Those that haven’t started paying an income stream might be able to be transferred.  Some UK pensions are locked, some are more flexible.  It’s similar to Australia where we have industry & retail funds, Self Managed Super Funds and Public Service funds (eg, PSS, Military Super and the like). 

Further, when moving money from the UK to Australia via QROPS, some of the money (but not all) is treated as an after tax, non-concessional contribution.  There is a limit of either $100,000 per year or $300,000 if you group this year and the next two years’ contributions.  Other parts of your pension may be taxed at 15%

If your parents UK pension has a “pay out” value, they may be able to transfer the lump sum over to a QROPS compliant superannuation fund.  However, there are a few things to keep in mind:

  • What is their age, are they over 55? 
  • How many pension funds do they have, and which ones have started paying an income stream?
  • What is the effective return they are receiving?  Defined benefits will give you a defined future benefit – so you can work out what return you may receive.  Accumulation funds (Defined contribution) are usually market return funds, so they’re more straight forward.  You have to consider if the money invested in Australia will produce a similar or better return
  • They will have to find an Australian compliant QROPS fund.  This can be very difficult to do.  Should they be required to set up a Self Managed Superannuation Fund, you have to consider:
    • The costs of setting up the fund
    • The costs of running the fund
    • The time and effort required to run the fund

The implications for moving a pension can be dramatic, so a lot of care and consideration should be given.  As always, seek independent financial advice and in this case, specialist independent advice.

General Advice Disclaimer
Note: This advice is of a general nature only and does not take into account your personal situation and all of your objectives, your financial situation or needs. Before making any decisions you should seek advice from a professional, qualified financial adviser.
Brenton Tong
Brenton Tong Financial Spectrum

Adv Rating 100% Cust Rating 97.54% Reviews 33

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Vote Answer

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Hi Richard

It is possible to transfer your parents UK pensions to Australia.  You need to be aware of the requirements usually by the UK pension fund and their transfer calculations for each of your parents accounts, you need to be aware of what HMRC (Her Majestys Revenue and Customs) requirements are and whether there are going to be any tax consequences from exiting the UK and then any tax consequences at the Australian end as it comes in.  One other significant consideration is the maximum transfer amount to Australia that is possible now will only be $300,000 for each of your parents.  This is based on the non concessional contribution limits for superannuation in Australia.  Therefore I go back to my point about understanding a lump sum transfer value for each UK Pension. 

From the UK you will only be able to transfer the funds to a QROPS.  This stands for Qualified Registered Overseas Pension Scheme.  Super funds must be registered with HMRC and meet their strict requirements to be a QROPS fund.  Unfortunately approximately 18-24 months ago all Australian super funds lost their QROPS status due to new requirements stipulated by HMRC.  As at todays date there are only one or two Australian Super funds that have been able to obtain new QROPS status.  Very slowly I expect more Australian super funds will be able to get back their QROPS status, however it is a long and costly process for them to do so.  The other way is via a SMSF (Self Managed Super Fund) which can obtain QROPS status.  The SMSF must meet strict registration requirements also.  One of those requirements is that all members must be over 55yo and you can not invest in direct property.

Lastly, in April of this year HMRC legislated a rule change regarding overseas transfers and introduced a Overseas Transfer tax charge. Where a UK pension is transferred to another country that is not the country the UK pension holders currently reside in a 25% exit tax applies.  This also lasts for 5 years upon transfer, that is if your parents transferred their UK pensions to Australia and then subsequently decided to move their residence to another country within 5 years the Overseas Transfer Tax will apply.

There is likely to be some tax charge by Australia due to the fact your parents have lived here for 20+ years.  That requires more detailed explanation and I won’t include further comment on that in this response.

General Advice Disclaimer
Note: This advice is of a general nature only and does not take into account your personal situation and all of your objectives, your financial situation or needs. Before making any decisions you should seek advice from a professional, qualified financial adviser.
Stephen Tangney
Stephen Tangney Artisan Financial Services

Adv Rating 99% Cust Rating 96.25% Reviews 15

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2 comments

"I think this just goes to show that you really do need to consult an expert in the different fields you are seeking advice in ? Whilst these two gentlemen have done their best at giving "some" general information, there are a couple of BIG glaring omissions, or just plain wrong comments. Firstly, (generally) if the pension has commenced paying an income (as inferred), it cannot be transferred. Secondly, if the Pension had not commenced, and could be transferred, not all of the funds are considered as NCC when being accepted into a qualifying QROPS Superfund here in Australia. Part is considered "Growth", taxed at 15%, and considered "contribution - other", and not counted in either NCC or CC caps. There are many other points, but this really just highlights the importance of seeking advice from a qualified expert !"

John Goldie 17:23 on 17 Nov 17

"Great answers. Congrats to you both! This is something people obviously would benefit from seeing a financial adviser."

Ethan B 15:27 on 17 Nov 17

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