Pension Transfers are not the most exciting part of emigrating to Australia, it certainly won’t have you jumping for joy like when you finally get you visa in your hand, but when you realise that what you could save on tax by having correct, timely advise could be more than all your other emigration costs put together you’ll realise it’s time to think very seriously about making the most of transferring your UK pension to Australia.
Darion Pohl, a pension transfer specialist and director of Prism Xpat, revealed to me 7 common pitfalls that many UK migrants make when considering transferring their UK pension to Australia.
I must point out that any tips and information in this article is general in nature, is information only and should not in anyway be construed as being financial advice. Each person’s financial situation will be different and you should seek professional advice from a cross border pensions specialist to determine the best way to act.
#1 Taking a Tax Free Lump Sum from their UK pension
For retirees planning to settle in Australia and planning to take a tax free lump sum from their UK pension to help them set-up life in Australia there may be a risk of having to pay high rates of tax in Australia, up to 46.5%, on the remainder annuity payments from the UK pension scheme.
#2 Not realising Pensions cannot be transferred out
Once a UK Pension is transferred to Australia it’s difficult, if not impossible to transfer it back out again. You need to consider which country you intend retiring in when deciding on whether transferring your pension to Australia is the right option.
Remember, up to 1 in 8 UK Migrants return from Australia to live back in the UK in the first two years of emigrating, which is both emotionally and financially costly there and then but could also be potentially disastrous in the long term if they’ve brought across a UK pension and cannot transfer it out.
#3 Not fully understanding Australian Job offers
There is a requirement for Australian employers to contribute 9% of your salary to a Superannuation fund. In some job adverts or contracts of employments the base salary is quoted inclusive of this contribution and in some it is quoted exclusive of this. This has a huge impact on the actual ‘take-home’ portion of your salary. Many new migrants don’t realise this, get caught out and end up disappointed.
#4 Not realising that the UK State Pension fund entitlement is fixed.
If you’re entitled to a UK State Pension and migrate to Australia then your entitlement is fixed and does not go up in line with inflation or any other increase.
#5 Thinking it’s all bad news
Stock market crashes, credit-crunch, interest rate rises, higher cost of living, property prices falling. It all seems doom and gloom! It’s not all bad news though, if you plan early and get the correct advise you can save huge amounts in tax and still be in an excellent financial position for starting a new life in Australia.
#6 Getting caught out Doing It Yourself
Some people try to save money by handling their pension transfers themselves. By not having the right knowledge of the UK and Australian tax systems and understanding which UK pensions can be transferred to Australia they often end up in a worse financial state and risk paying a 55% rate of tax if they transfer their UK pension into a non-approved Super fund in Australia.
#7 Getting the wrong advice
It is estimated three are 8 different pension tax systems in the UK. Many of these differ from those in Australia. Without getting advice from both the Australian and UK sides in any analysis of what you should do, you are only getting a small part of the story and missing out on many opportunities. Speak to someone who understands each of these tax systems in the two countries and can give the best advice
Author: Neal Gourley