If you transferred a pension from the UK to an Australia Qualifying Recognised Overseas Pension Scheme (QROPS) you may have concerns that a large tax bill is on the way.
Even though you may have transferred your pension into an Australian fund listed by HM Revenue & Customs (HMRC) in the UK, you may now find that the provider was not offering a QROPS that met the necessary standards.
If that’s the case, your transfer from the UK to the Australia QROPS is considered an ‘unauthorised pension withdrawal’ under UK pension rules.
Unauthorised withdrawals are subject to a tax charge starting at 55% of the transfer value of the fund and can also attract other penalties and interest.
Breaking the rules
A common misconception is just because a QROPS appears on the HMRC list of schemes available to accept transfers, the scheme is a QROPS.
The problem is HMRC does not undertake any quality control of schemes applying to go on the list – the responsibility lies with the retirement saver transferring the fund.
The firms on the list self-certify that their schemes meet the requirements to become a QROPS.
In June, 1,650 Australia QROPS were banned from accepting further transfers from UK pensions because they were breaking the rules by making payments to pension savers suffering financial hardship who were aged less than 55 years old.
UK pension rules are clear that no payments may be made to anyone under 55 except in exceptional circumstances, such as terminal illness.
Australia QROPS solution?
The good news for retirement savers with Australia QROPS is that only transfers on or after April 6, 2015 are affected by the new rules – money already in a delisted Australia QROPS is safe from a tax charge.
The bad news is few Australian pension schemes can ever requalify as a QROPS because they cannot change their trust deeds to stop pay outs to those under 55 because they will breach Australian pension rules.
The solution applied by the two or three new Australia QROPS listed since June 17, when the majority lost their QROPS status, is to only set up a QROPS for a retirement saver over 55 years old.
This meets both the UK and Australian requirements, but technically cannot pay out to anyone under 55 because the scheme is for a single member.