Australian superannuation funds are warning financial advisers not to transfer pension funds from the UK to Australia to avoid triggering a hefty tax penalty on the funds.
The move comes as the funds respond to changes under UK tax law which favour pension fund transfers to super schemes which restrict access to funds for people aged under age 55, unless the member retires due to ill health. However many funds in Australia also allow access to funds before age 55 in case of financial hardship and UK pension transfers to those will trigger a 55 per cent tax on the outgoing UK funds.
In documentation seen by Money Management super funds that have previously been on a list of approved overseas funds produced by the UK tax authority — HM Revenue and Customs (HMRC) – and since removed until they can comply with UK requirement have written to advisers and clients warning them to not transfer funds for the time being.
The documentation has stated that any transfers made since 6 April, when the UK tax laws changed, could trigger the 55 per cent tax on the value of the transfer and the funds were working in concert with each other and the Financial Services Council (FSC) to approach HMRC and seek an exemption for Australian super funds.
The FSC said it was aware of the issue and was in discussions with Treasury about seeking a solution while Australian superannuation funds would be approaching HMRC collectively to seek an exemption.
UK financial adviser and pension transfer specialist Geraint Davies, managing director at Montfort International said an exemption was unlikely because it would create inequity for pension fund members still resident in the UK.
“If Australia can persuade the UK to allow a carve out for Australian schemes it will be a wondrous feat of engineering, because if Australia can cause the UK to give something to its residents that the UK doesn’t allow for its residents then that would be something special,” Davies said.
“If Australia can pull this off then it means UK residents will want the same – nothing is impossible but this just might be a leap too far.”
The documentation also stated that some funds were considering if superannuation and tax law would allow them to change scheme rules to restrict members who have transferred British pensions to receiving those funds only after reaching age 55 or because of ill-health.
In an effort to avoid any inadvertent transfers HMRC has also written to UK pension schemes and warned them to restrict transfers to Australia until further notice.
