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Expat pensioners hit as Australia introduces £250k lifetime contribution cap

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Australia has imposed a harsh new cap for lifetime contributions to pensions, dramatically restricting the amounts the British savers will be able to take with them if they emigrate Down Under.

Last week the Australian government installed a limit of $500,000 (£254,000) on non-concessional contributions, sometimes known as ‘after tax’ contributions, that can be made to Australian pension accounts.

The cap is roughly a quarter of the current UK lifetime allowance of £1m, and will be calculated retrospectively back to July 1 2007.

Under previous rules, Britons moving to Australia simply had to comply with an annual cap of $180,000 (£91,500).

The new contribution cap took effect from 3 May 2016, immediately following the Australian Budget announcement.

AJ Bell technical resources manager Gareth James says the move means many savers will be forced to leave cash in UK pensions and bank accounts.

Montfort International managing director Geraint Davies says the changes will significantly increase the difficulty of advising UK savers on how to migrate their pensions to Australia.

He says: “This has just become immensely complicated. Anybody who thinks they can just fill out a form and send their money across needs their head examined.

“Hopefully it will result in better advice for people who want to move them as people see how complicated it is an seek out a specialist adviser, because many UK firms are just not equipped to give advice in this area.”

Davies says prospects of reform aimed at overseas money may also be limited.

He says: “Some people have called for a carve out for overseas transfers, but I would be most surprised if that happened.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. All Government’s talk about a ‘savings gap’ but obviously can’t keep their greasy mits off pension funds to plug gaps in their own finances.

  2. info@ilpg.co.uk info@ilpg.co.uk 10th May 2016 at 12:54 pm

    Is this a lifetime contribution limit or a lifetime allowance limit? The article seems to confuse the two.

  3. MM
    Are you confusing apples with pears here? You state that the new Australian cap is just a quarter of the UK’s, but the UK’s Lifetime Allowance is a FUND of £1Million, whereas the article states that the new Australian cap is £250k in CONTRIBUTIONS.
    Please clarify.

  4. Hi all, to clarify – Australia has introduced a cap on contributions, not overall fund size. The issue is that someone transfering a UK pension to Oz could breach that limit as the whole UK pot will be considered a contribution.

    Further details here: https://www.stateplus.com.au/news/federal-budget-2016-highlights/key-changes-to-superannuation

    • Eugen N@Montfort 10th May 2016 at 11:01 pm

      Breaching the limit may not be such a problem, it depends on the treatment of the excess – in the past the excess could have been paid to the member with no Australian tax liability. There is a lot more to that as there is also the growth from the date of arrival to the date of the transfer which is also treated separately. This is why it is important to higher professionals, we see many amateurs at work in this complex area.

  5. I though QROPS to Oz were no longer permissible but I could be wrong.

  6. @ John – I think this was in light of the new pension freedom rules and has since been lifted.

    I’m not 100% sure why anyone would want to transfer UK pension funds to Australia. You have to be a prescribed age to access your funds and be retired. Working part-time for the same employer is not likely to be enough, so phasing retirement could be trickier. I am sure the taxation of UK investments is perhaps one factor but once a permanent resident in Oz changing your mind means be subject to the above restrictions.

  7. Julian Stevens 10th May 2016 at 5:06 pm

    It wouldn’t surprise me if the UK government follows suit in addition to the AIA and LTA.

  8. Eugen N@Montfort 10th May 2016 at 10:56 pm

    There is a bit more to that.

    The lifetime cap only applies for the non concessional contributions – the money contributed mainly by wealthy people after they paid Australian tax on them. Australians could still make concessional contributions up to $25,000 a year. These are funds which instead to be taxed at the employee marginal tax rate are taxed at a lower rate i.e. 15%.

    The Australian Superannuation system is a TTE system (taxed on contribution, taxed on the growth at lower rates, benefits exempt from tax). Once an allocated pension was started the fund designated stopped to be taxed on growth – that was very nice.

    Or it just was like this as it is about to change. They will introduce another limit of $1.6 million for the maximum that can be designated for a pension where the fund does not pay tax on the growth, with the amount above still available to take pension benefits tax free but the growth of the fund will be taxed. This is retrospective, it will apply to everyone who designated more than $1.6 million in the past.

  9. Philip Castle 11th May 2016 at 7:24 am

    This article focuses on the what rather than the why. So this is what they have decided in Oz. I am just wondering why?

  10. So – if that’s a problem – don’t go to Australia.

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