QROPS Pension Transfers to Australia Have Been Halted and Postponed for Many Schemes
An article in the Financial Times today says that UK pension transfers to Australia have been halted whilst HMRC and QROPS in Australia hash out the rules.
HMRC have already sent letters to QROPS in both Australia and New Zealand warning pension companies which have registered and appeared on HMRC’s QROPS list that they will be kicked off the list if they don’t comply to the age restrictions set in the UK which doesn’t allow access to a pension under 55 years of age.
HMRC say that Brits who have transferred to a QROPS in Australia which is not HMRC compliant could face a 55% tax charge on any pension benefits they take. UK pension schemes which allowed the transfer may also face a 15% tax charge on the amount of the pension pot which was transferred for allowing an unauthorised transfer. This is extremely troublesome as pensions which have been transferred into Australia have not been transferred out at this stage, meaning that Brits could face a huge tax charge on their pensions if their present scheme is not QROPS compliant under HMRC rules.
What they can do, is transfer to a QROPS compliant Australian Super. We know that Australian Superfunds are working with HMRC and will continue to accept transfers. Other Brits who are in the process of transferring their pensions to Australia may have had the process halted and should talk to their financial advisers to see if the transfer will take place or will be held in limbo until the Australian Supers that they are transferring to make a decision on whether to change their rules or not, which politically could really upset local Australians who make up the large majority in these Australian Superannuation schemes.
Australian Supers Will Delist and Reapply
Most Australian Superannuation schemes will need to delist, then either rewrite their rules and reapply or remain delisted. Geraint Davies at Montford International thinks that if the Australian Superannuation scheme decides to compensate clients on the 55% tax charge, that compensation of loss is taxable in Australia and pension members will have to pay a further marginal tax rate of 45 per cent on top of the 55 per cent already paid. This is a PR disaster for HMRC and the UK government. The Conservatives will be relieved that this has come to light after the election.
There is also a problem if the Australian government changes the rules as a QROPS says that local residents and non-residents must be treated the same under a QROPS.
I think the most likely solution may be transfers from those who will remain non-compliant Australian Super schemes to Aussie SMSF’s and Australian Supers which are QROPS compliant. Which could mean pension transfers out from large Australian Super schemes to smaller ones. There may also be charges on exit, but would be a lot less than the unauthorised tax charge.
Solution to the QROPS Problem in Australia
Jeremy Gordon, who is a a barrister both in Australia and in the UK, is a pioneer of the QROPS industry in Australia. He has been providing solutions for Aussie SMSF’s and Aussie Supers so that they remain HMRC QROPS compliant.
Since 6 April 2015, Aussie QROPS like all QROPS, have to prohibit withdrawal from UK sourced pension money until the member reaches 55 unless the member satisfies the ill-health test. Directdocs.com.au deeds have been compliant since the beginning of 2015 and Australian Supers and SMSF’s which wish to remain QROPS compliant can download a form of amendment for Australian QROPS for their deeds.
There will be a lot of Australian Superannuation Schemes caught out by the new provision, and the deadline in the letter from HMRC is a date in June, so there will likely be a lot of funds delisted at that time.
Jeremy believes many in the industry are currently working on suitable amendments for their funds, although he has not seen any statements yet to corroborate this.
It is not all bad news. You can still transfer your UK pension to QROPS in Australia which are QROPS compliant in HMRC’s eyes. There are many Aussie SMSF’s that tick this box. You also have the option to transfer your UK pensin to a SIPP for investment freedoms or to a QROPS in Malta which has a Double Taxation Agreement with Australia. Please email me to find out more.
Please click here to learn more about UK pension transfers to Australia.