Watch Out For Australia QROPS Contribution Limits

Australia QROPS Contribution LimitsOne problem for wealthy expats wanting to set up an Australia QROPS is pension rules only allow payments in of £250,000 every three years.

For many modest retirement savers that can sound like a lot of money, but for many entrepreneurs and executives, and average pension fund can easily breach this limit.

The answer to switching money from the UK to an Australian QROPS is to stagger the transfers.

Don’t forget new Australia QROPS are not banned – just more difficult to set up as they have to meet stricter rules introduced in the UK in April 2015.

The main problem for Australia QROPS is many are offshoots of superannuation funds that allow hardship payments to the under 55s, whereas UK pensions do not let under 55s draw benefits except in exceptional circumstances.

Staggered transfers

Some providers are investigating the potential of setting up new Australia QROPS, but have not put a timescale on when they may emerge.

For wealthy expats, splitting the fund between smaller QROPS ready for a switch to Australia is one solution.

If each fund is less than £250,000, a QROPS in another financial centre can be transferred into Australia and then closed.

The ideal is to time the transfers every three years to take advantage of carry-back rules.

These QROPS can be opened in financial centres that allow retirement savers to host the QROPS but live elsewhere, such as Gibraltar or Malta.

Tax pitfalls

This staggered process meets Australian tax rules that allow trustees to receive transfers of up to £250,000.

For the investor, this means an election is available to tax fund growth at 15% as they no longer have an interest in the closed scheme.

If the scheme was left open, the election is unavailable and fund growth is taxed at 47%.

Exceeding the transfer limit can also lead to tax problems as trustees must send any excess cash back, but if the QROPS  does not qualify as an Australia QROPS, the cash could be considered as trust income and incur income tax at the retirement saver’s marginal rate.

Read more about transferring your UK pension Down Under on our Australia QROPS Jurisdiction Information page here

About John Cassidy

You can find me on Google+ and other social sites coming soon