Transferring a UK Pension to a QROPS in Australia—All You Should Know

This guide will explain whether you can transfer your UK pension to a QROPS in Australia, what Australian superannuation funds are, and who qualifies for the transfer.

We’ll also cover tax liability, benefits, and drawbacks you should be aware of and provide steps for transferring your pension to an Australian QROPS.

Can I Transfer My UK Pension to an Australian QROPS?

Yes, you can transfer your UK pension to a QROPS in Australia—as long as you meet specific QROPS criteria. Most private UK pensions qualify for a QROPS pension transfer, but there are a few UK pension pots you can’t transfer abroad:

To transfer your UK pension to an AU QROPS, you must choose an Australian pension scheme that:

• Complies with HMRC rules.
• Is included on the QROPS list.
• Meets specific eligibility requirements.

If you transfer your pension to an overseas scheme that isn’t on the QROPS list, the transfer will be considered an unauthorised payment, and you’ll face a 40–55% tax fee.

Who Is Eligible for a Pension Transfer to an Australian QROPS?

Once you turn 55, you’re eligible for a UK pension transfer to an Australian QROPS as this is the HMRC age requirement for pension withdrawals. This rule was introduced to prevent early withdrawals that don’t comply with HMRC rules.

You’re liable for an overseas transfer charge (OTC) of 25% when transferring your pension abroad. However, you may be exempt from this tax charge if:

• You’re a resident of the country where your QROPS is based.
• You’re transferring funds to a QROPS your employer participates in.
• You’re moving your pension to a QROPS set up by an international organisation you work for.

While you may be exempt from OTC under the aforementioned criteria, you could still be subject to it if the pension transfer value exceeds the overseas transfer allowance set at £1,073,100.

The scheme administrator must complete the form APSS262 and submit it to HMRC within 60 days of the transfer. Otherwise, you may be liable for the 25% tax charge despite meeting the previous exemption requirements.

What Are Australian QROPS Super Funds?

All Australian employers must contribute to Australian superannuation pension funds on behalf of their employees. Super funds allow individuals to withdraw their pension once they turn 60 (or 65 if they haven’t retired from work at 60).

They may also take their pension upon reaching preservation age. The preservation age for someone born in 1960 is 55, while for an individual born after 1 July 1964, it’s 60.

As the super fund age requirements don’t comply with the HMRC withdrawal age of 55, the Australian pension fund you want to transfer to must be on the HMRC QROPS list.

Superannuation funds allow early pension withdrawals on compassionate grounds, such as needing money for a dependent’s medical treatment or funeral. Early withdrawals are also allowed in case you have:

• A terminal medical condition.
• Severe financial hardship.
• Temporary or permanent disability.
• An account balance of less than $200 and are no longer employed.

Meanwhile, HMRC only allows early withdrawals if:

1. You’re retiring due to ill health.
2. Your life expectancy is less than a year.
3. You joined a pension scheme before 6 April 2006 with the right to take your pension before age 55.

Since HMRC requires pension schemes to comply with its withdrawal rules to be approved as a QROPS, many super funds aren’t on the QROPS list. Still, you can transfer your pension to AU by setting up a Self-Managed Superannuation Fund.

What Is a Self-Managed Superannuation Fund?

A Self-Managed Superannuation Fund (SMSF) is an Australian super fund that you set up and manage yourself. This means you’re in charge of your contributions and investment decisions and must comply with tax and superannuation laws.

Once you set up your SMSF, you can request that HMRC register it as a QROPS. After HMRC checks if your SMSF meets their requirement and approves the scheme as a QROPS, you can transfer your pension to it. Among various HMRC QROPS requirements, your SMSF must be:

• Based outside the UK.
• Open to Australian residents.
• Registered with the Australian Taxation Office as a pension scheme.

This process requires careful planning and consideration of factors—like the cost of running an SMSF, which can range from over $2,000 to more than $15,000 depending on your asset value.

To ensure you don’t miss an essential step, seek advice from a pension transfer professional. Titan Wealth International’s experts can help you gather all the information you need to set up your SMSF or find an Australian QROPS that matches your needs. They can also assist you in choosing investments that align with your risk tolerance.

What Are the Tax Implications of a QROPS Transfer to Australia?

Besides the possible overseas transfer charge, when transferring your UK pension to an Australian QROPS, make sure you consider the following tax rules:

1. The QROPS 5-year rule in Australia.
2. The 10-year rule in the UK.
3. Non-concessional contribution cap.
4. The QROPS 5-Year Rule in Australia.

Established in 2006, the five-year QROPS rule states that if you want to avoid UK taxation, you must be a UK non-resident for five consecutive tax years before starting to withdraw your pension. You’ll be liable for UK income tax if you withdraw QROPS funds before this period passes.

However, this rule applies only to UK expats who transferred their pension before 6 April 2017. For pensions transferred after this date, the time frame of the rule was extended to ten years.

The QROPS 10-Year Rule

According to the ten-year rule, you must be a UK non-resident for ten consecutive years after the pension transfer before taking money from a QROPS. You must also report all QROPS payments to HMRC for those ten years, including information about the transfer and any unauthorised withdrawals, like withdrawing funds before age 55.

Once the ten years pass, you won’t be liable for UK tax on your QROPS withdrawals. You shouldn’t be liable for Australian income tax either because your QROPS funds are taxed upon accrual instead of withdrawal in AU.

Non-Concessional Contribution Cap

Typically, contributions to an Australian QROPS are non-concessional (after-tax) because you’re transferring money already taxed in the UK.

The cap for non-concessional contributions for the tax year 2024/25 is $120,000. If you exceed this limit, you may qualify for the bring-forward arrangement and be allowed to access the future year cap automatically. Otherwise, you may have to pay extra tax.

You’re eligible for the bring-forward arrangement if you’re under 75 at any time during a financial year (from 1 July to 30 June of the following year). As of 1 July 2024, you’re allowed to contribute three times the yearly non-concessional contributions cap over three years.

This applies if the total balance of your QROPS super fund on 30 June of the previous financial year was less than $1.66 million.

Fund’s Assessable Income Tax

You can reduce taxes by including any applicable QROPS earnings in the fund’s assessable income. If you do so, your earnings are taxed at the fund’s 15% tax rate instead of the marginal income tax rate, which ranges from 0% to 45%, depending on your income amount.

To qualify for this tax reduction, you must fulfil both of these conditions:

• Be an Australian tax resident for over six months.
• Transfer your entire foreign fund interest directly to an Australian QROPS super fund.

You can only include the earnings accrued while you were an Australian tax resident. If you do not qualify, any applicable fund earnings must be included in your personal assessable income.

What Are the Benefits of a Pension Transfer to an Australian Super QROPS?

If you plan to retire in Australia, transferring your UK pension to a QROPS in AU protects you from currency risks as you can withdraw your pension in AUD. It also allows you to keep track of changes in tax laws and regulations more easily. Some additional benefits include:

How To Transfer a UK Pension to a QROPS Superannuation Funds in Australia

To transfer your pension to a QROPS in Australia, follow these steps:

1. Ensure you meet the eligibility requirements for a QROPS transfer in AU.
2. Speak to a financial adviser to evaluate your QROPS options.
3. Pick an Australian QROPS from the QROPS list or set up your own SMSF.
4. Fill out the necessary documentation, like form APSS263 and submit it to HMRC.

Once the pension transfer is approved, your funds will be transferred to your chosen QROPS in Australia within a few weeks or months.

When the transfer is complete, make sure you review your QROPS regularly with the help of a professional adviser to ensure your investments are aligned with your goals.