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It has become increasingly more common for Australians to have entitlements to overseas pension and retirement funds. This could be the result of having lived and worked abroad in your younger years or because you have made the decision to migrate to Australia later in life and retire here.
Most foreign Social Security entitlements will continue to be taken as income streams and they will not have a capital value that can be transferred to Australia to fund your retirement.
Two of the most common places for Australians to have a working holiday or migrate from are the UK and the USA, both of which have significant differences when it comes to transferring retirement benefits across to Australia. I will briefly touch on the main points in the process and the differences.
For returning Aussie ex-pats and US citizens who decide to retire in Australia, you are given two choices, withdraw benefits before you leave the United States or wait until you reach the prescribed age of 59.5 years old. Withdrawing before this mandated age will attract a 10% penalty tax. Taxation from the ATO will not yet be accounted for as you will be taxed as a US resident at this point.
Funds transferred from US funds to an Australian super fund are typically considered non-concessional contributions (with certain exceptions), so when transferring in large balances we must remain mindful of the contribution caps in place. These limits are currently $100,000 per year or $300,000 if you were to use the bring-forward rule (increasing on July 1, 2021, to $110,000 and $330,000). If balances are large enough, they may be brought in over a number of years in order to comply with the limits.
Transferring a pension fund from the US into the Australian super environment will inevitably incur taxes. Tax treatment of both countries can be a rather complicated process given that the U.S. has different retirement plans in place. It is highly recommended for individuals who plan to make the permanent move to Australia with their pension money to seek advice from a tax expert, as there will also be tax assessed in Australia.
For returning citizens or migrants from the UK, transferring retirement funds to Australia can be a lengthy and tedious process, which you are only able to undertake once you reach 55 years of age.
In order to get the funds into the Australian superannuation environment, you need to have a Self-Managed Super Fund (SMSF) or a specialized complying public offer fund that meets the rules enforced by UK pension schemes. The fund will need to be registered as a Qualifying Recognised Overseas Pension Schemes (QROPS), a scheme that is managed by her Majesty’s Revenue and Customs (HMRC).
Transferring your UK pension to an Australian super fund and registering it as QROPS certainly has its benefits, including being exempt from the overseas transfer charge and not being charged UK inheritance tax. However, the process can be tedious and may take months to complete.
Remember that it will not always be beneficial to withdraw and transfer an overseas pension into your Australian superannuation fund, and it is crucial to get specialist tax advice to determine the best approach. If you are in this situation and would like to know how this could impact your own financial planning arrangements, or if you would like any more information please make a time to speak with one of our highly qualified Private Client Advisers, you can contact us HERE
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email email@example.com or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.