Australian financial planners, unless licensed in the United Kingdom, should not be advising clients on UK domiciled assets due to tax legislation which has become increasingly complex, a pension expert said.
Pension Porter principal Brandt Page warned that almost 60,000 UK residents emigrated to Australia annually, with 90 per cent of them not seeking financial advice before they moved.
“Irreversible consequences can arise when clients do not receive the right advice before moving assets to Australia,” he said.
The UK rules on transferring pension funds from the UK to Australia changed significantly last month for Qualifying Recognised Overseas Pension Schemes (QROPS).
The transfer process was far more than simply administration and execution, Page said.
Pitfalls included the six month rule, contribution limits, guaranteed benefits, exchange rates, death benefits and tax benefits.
Under the six month rule, the transfer of UK clients’ pensions was time-sensitive. If transferred within six months of arrival in Australia, no tax was paid on the transfer.
“If the pension is transferred after six months, tax is payable on any growth in the fund between the individual’s arrival date and the day the funds arrive in Australia,” Page said.
“This tax could be at the highest marginal rate, or at Australian superannuation scheme rates.”
Australia’s caps on non-concessional superannuation contributions could greatly restrict the transfer of large pension balances.
Individuals with funds over the cap would need a clear strategy on staggering the arrival of their funds into Australia.
“This strategy can be complex,” Page said.
“As the client’s existing UK pension scheme may not allow partial or staged transfers.”
Guaranteed benefits in UK defined benefits (final salary schemes) promised the member a guaranteed regular pension in retirement.
These guarantees could not be matched by a defined contribution scheme (such as an Australian superannuation fund).
Exchange rate variations meant that in recent months, the rate for converting sterling funds into Australian dollars had hit a 25-year low.
Death benefits from a UK pension scheme may provide a widow’s or spouse’s pension only (but could include dependents and lump sum benefits depending on the scheme rules).
