Britons living in Australia warned of having to downsize retirement plans

Sara Lucas, Executive Wealth Manager at deVere Australia

Britons living in Australia should consider whether a pension transfer is right for them sooner, before interest rate hikes slam an enhanced window of opportunity shut.

This is a warning from deVere Group, an independent financial advisory, asset management and fintech that has more than 80,000 expat clients and $17bn under advice globally.

This stark warning comes at a strategic time when the Bank of England has raised interest rates for a second time in three months to 0.5%, with more rate rises likely.

Bank of England tackles ravaging inflation

Almost 1.2 million people who were born in the United Kingdom are living in Australia. This fact therefore makes them the largest migrant community in Australia.

Their median age of 57.3 years is 19.9 years above that of the general population.

Sara Lucas, Executive Wealth Manager at deVere Australia says, “The United Kingdom’s central bank has said it would continue to raise rates this year and next, to 1.5% by mid-2023.”

“The United Kingdom’s central bank is raising rates as it attempts to tame soaring inflation despite a wavering economic recovery and deepening cost of living crisis.”

“The Bank of England’s decision is likely to be a blow to those with United Kingdom final salary pensions living in Australia who are considering a transfer of their retirement savings.”

“Why? Because rising interest rates push down final salary transfer values.”

“Currently, these values are still around all-time highs, but anyone with a UK pension needs to be aware that one of their biggest financial assets may be starting to fall in value.”

“This can impact their retirement. Many could be forced to ‘downsize’ their future plans.”

“As such, British pre-retirees living in Australia, or Australians with a frozen United Kingdom final salary pension, should sooner rather than later consider whether a pension transfer is right for them before interest rate hikes slam an enhanced window of opportunity shut.”

Superannuation benefits of QROPS

Since being launched in 2006, Qualifying Recognised Overseas Pension Schemes (QROPS) have been the most popular form of United Kingdom pension transfers.

They are pension schemes based outside the United Kingdom that meet HM Revenue & Customs (HMRC) rules to receive transfers from UK-registered pension funds.

Schemes only make the HM Revenue & Customs list if they meet terms similar to United Kingdom pensions, including not being accessible before the age of 55.

“When your retirement funds are transferred to Australia, they’re not typically subject to inheritance or income tax in the United Kingdom and, after paying initial tax on transfer, you can often benefit from a much lower tax rate,” says Lucas.

“Other major advantages of transfer into Australia include flexibility around lump sum or income payments; on death, your whole pension fund can be passed to your heirs.”

“You can consolidate multiple schemes into one which will be easy and sometimes cheaper to manage; assets can be held and income drawn in a currency of your choice, which means you can reduce conversion costs and currency volatility.”

“A flexible and wide range of funds to suit your circumstances and risk appetite, plus you don’t have to be over-exposed to United Kingdom assets.”

“For the under 55s, a transfer to Australia is unsuitable and there are other options, including United Kingdom SIPPs which may be a better alternative, or can act as a ‘transit lounge’ allowing you to lock in your current transfer value until you can transfer funds into Australia.”

It’s important to take expert advice from an experienced specialist who understands the nuance of the Australian and UK systems and help you navigate the complex regulations.

“The pension transfer area is a minefield and it pays to have the right adviser by your side the whole way or you risk paying 55% penalty tax.”

“British pre-retirement expatriates and Australian with United Kingdom pensions can potentially enjoy lower tax rates, higher income potential and greater financial freedom.”

“Interest rate hikes could force those who act too late to rethink their retirement.”