UK toughens pension transfer rules

Ex-patriots from the United Kingdom looking to transfer their pension across to Australia may be limited in their choice of investments, and could be hit with huge tax bills under changes to British legislation.

An overhaul of rules affecting defined benefit pension schemes introduced on April 6 could force new Australian residents to place their retirement savings into annuities.

“To be a qualified registered pension scheme, the most daunting thing is the rules of the scheme may have to designate at least 70 per cent of the sums transferred for the purpose of providing the member with an income for life,” said Association of Superannuation Funds of Australia (ASFA) policy and research director Dr Michaela Anderson.

“This means you have to be a life pension payer, and most funds in Australia are paying allocated pensions.”

The requirement, however, will only come into force if Australian funds don’t meet complex tax requirements set out by the UK Government stipulating investors not face taxation in Australia more burdensome than taxation in the UK.

ASFA said it was currently in discussions with Federal Treasury to see if local super funds met this requirement.

According to UK-based Montfort International managing director Geraint Davies, investors who transfer their pension could be hit with tax bills as high as 40-55 per cent if Australian super funds fail to meet strict new reporting requirements set down by the British Department of Inland Revenue.

“The Australian superannuation scheme has got to report back to inland revenue the first transaction of the scheme, and then report annually for six years, and if it’s not happy, the Australian scheme will be hit with the tax and will be blacklisted for not complying with UK tax rules, and will not be able to receive overseas transfers.

“Australian schemes seem to be falling like flies and don’t want to do this.”

But Advance head of technical services Matthew Estler said financial planners who put investor’s money into a reputable qualified fund would not have to pay the 40 per cent tax.

“Where the fund has received qualifying status, you should also ensure that the fund has the necessary administration platform or processes in place to enable the transfer and make sure the whole process is streamlined, and Advance is looking to be the first to receive quality status.”

He said Advance was confident it would meet all British requirements to become a Qualifying Recommended Overseas Pension Scheme, and that investors would be able to transfer money into allocated pensions.

According to Australian Bureau of Statistics data from June 2002, Australians born in the UK represent 5.7 per cent of the population.