New Oz rules for pension cap to affect UK expats

Published:  19 Sep at 6 PM
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A confirmed Australian government rule change has raised the lifetime pension contribution limits to $1.6 million, and is likely to complicate pension planning for UK expats.

After scrapping a previous plan aimed at capping lifetime pension contributions at AU$500,000, the Australian government has done a u-turn and increased the cap to AU$1.6 million. Since the change, UK expats living in OZ can now transfer at an upper limit of £900,000 rather than the previous £280,000.

Although the change initially sounds positive, the tricky part is that the lifetime cap is applicable to the size of the pension pot rather than the member’s actual contributions. Should returns on the investment push the total to the new upper limit, no more contributions are allowed to be made.

In addition, rather than accede to added tax relief controls, the Australian Treasurer has lowered the yearly after-tax limits on contributions to £57,000 from its previous high of £102,000. Under the new limits, a Brit expat would need 16 years to transfer the upper limit of ££900,000. However, UK government rulings disallow transfers to Oz funds unless the holder is at least 55 years old, meaning that transferring the full amount would take 16 years if started as soon as the expat reached 55.

According to a representative of a leading financial advisory company, the new rules make good sense, but also make the system scarily complicated to administer. For example, he said, Australian law also allows superannuation fund members to withdraw cash earlier than at 55 if there’s terminal illness or financial hardship, a rule which is illegal in the UK.

The representative also urged international regulators and the UK’s FCA to scrutinise advice in this area given to expats by IFAs. Many providers offering over-simplified products and pension transfers such as QROPs are somewhat careless about informing clients of any tax implications. Others are simply burying disclaimers about tax advice in contractual small print. Advisors who aren’t fully conversant with tax implications should not be giving advice, he added.
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