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UK Pension Update May 2015

New Rules for Public Sector Pensions

As at 6th April 2015 the UK Government enacted the Pensions Act 2015 which introduced massive change to UK based pensions, some of which may adversely affect individuals living abroad. The new rules dictate that individuals who have established benefits in a public sector defined benefit pension scheme will no longer be able to transfer their benefits to an a scheme offering flexible access in retirement, such as an Australian superannuation fund.

There are however concessions to this rule, where a member can transfer their benefits in ‘exceptional circumstances’. Clarification has yet to be provided as to the extent of these circumstances which a transfer will be permitted.

Therefore, if you are in the situation whereby you have not been able to transfer your benefits to Australia you will simply have to wait until retirement age to claim the UK based benefits as the fall due.

Income derived from a UK pension scheme is currently deemed to be assessable income by the ATO and taxed by accordingly. As such, if you intend to retire in Australia and continue to receive a UK based pension careful income and tax planning may be necessary to avoid excessive income tax on these benefits once you retire.

How will your Private Sector Pensions be affected?

In addition to the changes to public sector pension schemes, a range of changes the effect private company pension schemes became effective from 6th April 2015. The new Pension Schemes Act 2015 states that an individual wishing to transfer benefits from a scheme with ‘safeguarded rights’* to a flexible pension will have receive advice from a UK based financial adviser regulated by the Financial Conduct Authority (FCA).

However, this requirement for professional financial advice will only apply to individuals with pension savings above £30,000. Anyone whose benefits are below this level will be able to transfer their pension benefits without the requirement for UK based advice.

*Safeguarded rights are pension benefits that contain guarantees that are payable at retirement. An example of a scheme with safeguarded rights would be one that provides defined benefits, such as a final salary scheme.

Non-Guaranteed Pensions can Still be Transferred

If you hold benefits within an ‘accumulation’ style pension scheme which does not contain guaranteed benefits there are no changes to how your pension benefits are transferred. It is possible to transfer the funds without UK based advice. In many cases there are considerable advantages in transferring these funds to an Australian superannuation fund. Examples include:

  • Tax free income in retirement
  • Access to your entire fund when you retire
  • No fluctuations in exchange rates
  • Pass all of your funds to your family on death
  • Invest the fund in Australia and benefit from exceptional growth prospects

As with the complexities of foreign pension and financial planning issues, it is important that you have a clear understanding of your options and how these changes will affect you in order that you can make decisions that suit you. Speak to McKinley Plowman for a greater understanding of your options and how a transfer may benefit you.

Will Lyons
PTS Pension transfer Specialists

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