Australian QROPS list what is really going on


Much has been made of the fact that Australian pension transfers are increasing at a dramatic rate as the number of schemes on the Australian QROPS list expands – because people are setting up their own self-managed super funds (SMSF’s). However, lifting the lid on this shows that in the last six months around 110 new Australian QROPS have been registered. That means less than 20 QROPS a month have been added compared with the net migration from the United Kingdom to Australia of nearly 4,000 month, which jumps up to almost double that when you consider Australian residents returning from the UK.

So is there really a major trend to establishing self-managed superannuation schemes to accept UK pension transfers, and is the Australian QROPS list expanding?

Before the Australian QROPS list was butchered by the HMRC in June 2016 the majority of the 1,600 schemes on the Australian QROPS list were self managed superannuation schemes. These schemes were not immune to HMRC’s wrath and were all removed from the QROPS list.   Running at 20 a month would still take some six years to get to the same level of Australian schemes on the QROPS list. Now while this is slightly shorter the nine years that the previous QROPS list had been in existence it does not point to a ground swell of change.

So who was transferring into SMSF’s in Australia previoulsy? Well this was probably determined by the tax effect that people would have incurred by transferring their funds to Australia. When you transfer a UK pension into Australia there are a number of tax considerations that need to be taken into account (this article does not consider UK lifetime allowance charges which are an entirely separate topic).

High taxes in Australia inhibit transfers to SMSF

The two main sources of tax are:

  • Tax on the growth in the overseas fund when it arrives
  • Concessional contributions cap tax

Essentially these taxes are levied as per the table below, which shows that the older you are and the greater the pension fund you are transferring to Australia the more tax you would pay.

UK pension transfer balance Under 55 Between
55 and 65
Over 65 Over 75
$100,000 Cannot transfer to Australia Tax on growth since arrival of 15% Tax on growth since arrival of 15% Tax of 47% on the transfer
$500,000 Cannot transfer to Australia Tax on growth since arrival of 15% Tax on growth since arrival of 15%

Tax of 47% on $320,000 of the transfer

Tax on growth since arrival of 15%

Tax of 47% on the transfer

$1,000,000 Cannot transfer to Australia Tax on growth since arrival of 15%

Tax of 47% on $460,000 of the transfer

Tax on growth since arrival of 15%

Tax of 47% on $820,000 of the transfer

Tax on growth since arrival of 15%

Tax of 47% on the transfer

So transfers only really appear attractive for people between 55 and 65 and who have balances less than $540,000 to transfer to Australia (and for those between 65 and 75 who have less than $180,000 to transfer). For everyone else a transfer is either not possible or extremely costly from an Australian tax perspective.

With the latest ATO report showing that the average fund balance is $1,066,080 it certainly appears that SMSF’s are for those with significantly larger fund balances. However, this is contrary to those who would benefit from a transfer into a SMSF based on their UK pensions. So why is it that the average balance in SMSFs is so high?

Fees prevent people with small fund balances transferring into SMSF’s

The latest ATO report shows that for people with SMSF account balances of between $100,000 and $200,000 then the average expense ratio for such an SMSF is 4.86%. That means that they are paying nearly 5% of their funds a year to run their SMSF’s. This is why SMSF have never been popular for those transferring smaller fund balances from the UK to Australia. SMSF have not become economic because the UK rules have changed.

So it appears that SMSF’s only cater for people who are between the age of 55 and 65 and have between $200,000 and $500,000 to transfer from the UK and have not been living in Australia for very long (in order that they do not have a big tax liability on the growth in the assets when they transfer over).

For those that set up SMSFs there are a lot of risks

When you set up a SMSF you are in charge (the Australian Tax Office website is very clear on that read more), they also go on to say “you make the investment decisions for the fund and you’re held responsible for complying with the super and tax laws. It’s a major financial decision and you need to have the time and skills to do it.”

Every year that you have an SMSF you’ll need to pay for an independent audit and the supervisory levy. Most SMSFs also pay for additional help, such as:

  • preparing the SMSF annual return
  • valuations of the SMSF’s assets
  • actuarial certificates for SMSFs paying income streams (pensions)
  • financial advice
  • legal fees, for example if the trust deed needs to be amended
  • assistance with fund administration
  • insurance

What’s available for those who do not meet a select few criteria?

So what is happening to all those people who would previously have transferred into a standard scheme on the Australian QROPS list and who might currently:

  • Not be over 55 years old
  • Not have a large enough pot of money to be justifying a transfer into a self-managed superannuation scheme
  • Have a large pension and do not want to end up with a large tax bill on the transfer of their UK pension

A lot of people want to transfer out of the UK as the UK government has been continuously changing the pension laws in the UK and changing who can transfer out (take the recent decision to stop pension transfers out of all unfunded public sector schemes such as the pensions for the NHS, teachers or armed forces). These changes show no sign of abating with most recent change being the cut to the Government guarantee on contracted out state pensions read more.

People have been reviewing options such as Malta and Gibraltar for their pensions, but these options do not provide any different tax situations than leaving your pension in the UK (from an Australian perspective which is where you are). Furthermore, unless these schemes are registered in Australia they are not allowed to offer their schemes in Australia.

So the logical alternative is transferring your UK pension to New Zealand for a raft of different benefits like full Australian regulatory protection, great tax benefits and a raft of other benefits as outlined here.


Get In The Know

Fill in the form to get your FREE comprehensive UK Pension report