Another financial upset could rock retirement saving for British expats looking to transfer their pensions to an Australia QROPS.
The dust is dying down on the recent budget which has led the Australian government to cap pension funds with a lifetime allowance with immediate effect to AUS$500,000 – about £250,000.
Before the shock ruling, expats were allowed to make contributions of $180,000 a year or $540,000 every three years as an aggregate amount.
The decision is expected to place a ceiling on transfers to Australian Qualifying Recognised Overseas Pension Schemes (QROPS), whose rules are likely to change to follow those set by local regulators.
Confirmation has yet to be announced by the government.
Australia QROPS solution
The difficulty for expats is the Australian lifetime allowance is now much less than the £1 million in the UK.
Expats can transfer their UK pensions worth up to £1 million to a QROPS – but many will breach the $500,000 limit.
Now, expats with pensions likely to break through the Australian lifetime allowance need to reconsider switching offshore. The measure is also likely to affect high-earning Australians who have saved into pensions in Britain who now want to return home.
Pensions over the lifetime allowance will attract tax penalties of up to 45% of the value of the excess. Savers will also have to withdraw the excess amount.
Fortunately, financial centres such as Malta and Gibraltar offer QROPS to expats in Australia.
These QROPS have no lifetime allowance limit and allow savers to live in Australia while running their pensions remotely.
Australia QROPS decimated
They also come with all the tax and investment features of an Australia QROPS – including the option to pay benefits in Australian dollars.
The Australia QROPS market was devastated in July 2015 when HM Revenue and Customs (HMRC) in the UK introduced a pension age test alongside new flexible access freedoms.
The new test barred any pension from assuming QROPS status if benefits could be paid out to retirement savers aged under 55 years old.
Australian pensions had a provision allowing these payments to savers under 55 who were experiencing extreme financial hardship.
Overnight, the Australia QROPS market plunged from 1,653 pensions to just one.
Since then, pension providers Down Under have redrafted their compliance to only allow QROPS savers who have turned 55 to transfer their savings.
Australia now has 206 QROPS.