UK pension and QROPS information for expats and residents in Australia

There are thought to be over 1m British citizens now living in Australia. There is a similarly large number of Australian citizens who have worked in the UK at some point and are now back living in Australia.

Whilst these two groups may be wearing different jerseys when the rugby or cricket is playing on the TV, they will both be asking one question; what to do with their UK pension benefits. They believe that the only answer is QROPS Australia, although this is not the only option.

Anyone who has worked in the UK will normally have built up some form of UK pension benefits. It is now compulsory by law for all employers in the UK to enrol their employees into a workplace pension scheme.

This means when people leave the UK, they will need to decide what to do with the pension fund they have built up.

Usually people opt for QROPS, without knowing the many benefits that SIPPs can provide.

➤ Find out why MyExpatSIPP is the ideal solution for Australian residents with a UK pension 

Transfer a UK pension

The money held in a UK pension scheme can be transferred to another pension scheme in the UK, or certain overseas pension schemes. Transferring your pension between UK pension schemes is usually a relatively easy process and enables people to transfer and combine multiple pensions into one easy to manage pension such a SIPP.

You can transfer your pension to an overseas pension scheme if the receiving scheme meets a number of criteria specified by HMRC in the UK, a SIPP meets this requirement as well as QROPS.

QROPS in Australia

You can transfer your UK pension to a QROPS in Australia as long as the receiving Superannuation fund has QROPS status. QROPS Australia are usually the only option assumed by Australian citizens.

qualifying recognised overseas pension scheme or QROPS for short, is an overseas pension scheme that the UK recognises as eligible to receive transfers from registered pension schemes in the UK. However, QROPS can be quite limiting.

To qualify as a QROPS in Australia, the scheme must meet the requirements set by UK tax law. To check if a pension is a QROPS you can check the list of schemes that have told HM Revenue and Customs (HMRC) that they meet the conditions to be a recognised overseas pension scheme (ROPS).

“You can only transfer your UK pension to Australian QROPS if you’re aged 55 or over.”

You can only transfer your UK pension to a QROPS in Australia if you are aged between 55 and 75 as the Australian Superannuation rules regarding accessing your pension before age 55 don’t match the rules in the UK.

If you’re aged between 65 and 74, then you can only transfer to a QROPS in Australia if you meet the ATO “work test”. To pass the work test you must have worked at least 40 hours within 30 consecutive days in a financial year to be eligible for QROPS.

According to the ATO rules; “Superannuation funds cannot accept personal contributions that are made more than 28 days after the end of the month in which the member turned 75.”

A transfer of a UK pension to Superannuation is treated as a personal contribution as it is a QROPS. Transferring to a SIPP is not a contribution.

If the transfer is made within 6 months of moving to Australia, then the whole transfer is treated as a non concessional contribution and therefore subject to the NCC limits and rules.

If the QROPS transfer is made after 6 months of moving to Australia, then the rules are slightly different. The value of your UK pension on the date you arrived in Australia is treated as a non concessional contribution. The growth in the value of your fund between the date you arrived in Australia and the date your transfer is treated as fund earnings and therefore subject to tax in Australia. This part of the QROPS Australia transfer is neither treated as a concessional contribution or NCC.

There is only one retail superannuation with QROPS status, the Australian Expatriate Superannuation Fund, the rest are all self managed superannuation funds (SMSF) which have applied for QROPS status.

Once you transfer your pension to a QROPS in Australia then it becomes subject to normal Superannuation rules, as well as being subject to UK rules for 10 years after the transfer.

Drawing your UK Pension

You are able to start taking withdrawals from your UK pension once you reach age 55. New rules implemented in April 2015 which affected QROPS and SIPPs, known as “pension freedoms”, mean you can now withdraw your whole pension from a SIPP, there is no longer a requirement to use your pension fund to purchase an annuity income for life.

You can take up to 25% of your pension tax free, either as one lump sum or gradually over time through multiple withdrawals from your SIPP.

The remaining 75% in your pension is treated as income and subject to UK income tax. This can also be withdrawn as one lump, gradually over time as your income in retirement, or not at all. There is no requirement in the UK to draw your pension.

It is important to note that QROPS must abide by rules set out by HMRC in the UK, otherwise they will not retain their QROPS status.

If you’re resident in Australia, you will be able to use the double taxation agreement between the UK and Australia which states that:

“Pensions (including government pensions) and annuities paid to a resident of a Contracting State shall be taxable only in that State.”

This means that UK pensions paid to Australian residents, through QROPS or a SIPP, will be taxable in Australia. Conversely it would mean that withdrawals from Australian Superannuation paid to UK residents would be taxable in the UK.

We can assist you with the process of informing HMRC in the UK that you are no longer resident and that you would like your UK pension to be paid without the deduction of UK tax and transferred to Australia. We cannot assist you with tax on a QROPS.

Manage your pension with a SIPP

If you’re under age 55, or don’t want to transfer your pension to a QROPS in Australia, you can still stay in control of your pension once you leave the UK by transferring your pension to a SIPP rather than a QROPS.

A SIPP is a type of UK pension plan, similar to QROPS to an extent, that provides you with increased flexibility and options compared to a standard employer pension plan.

MyExpatSIPP is a SIPP that allows you to manage your pension from your online account, meaning there’s no paperwork to send back and forth to the UK. Many expats prefer a SIPP over QROPS as they know a SIPP is governed by UK regulation with protection from the Financial Conduct Authority and the Financial Services Compensation Scheme.

We have developed three ready-made investment portfolios, managed by Vanguard and BlackRock, meaning you don’t need to worry about managing your own investments and you can leave it to the experts. Alternatively you can build your own portfolio with online dealing in Shares, ETFs, Investment Trusts and Mutual Funds.

We provide you with all the resources, information and guidance to enable you to stay in control of your pension and manage it online from anywhere in the world.

Read more: UK pension SIPP for residents of Australia (not QROPS)

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