Question 1: How can I find competent financial advice for UK/AU superannuation and tax and pensions? There must be hundreds of thousands of ex-Poms like me with a mixture of vesting in state and private super schemes. Very few agents here seem to specialise and almost all of them want to sell complex SMSF products and ignore the national insurance scheme, and UK tax issues.
You are correct in saying there are thousands of ex-British people like yourself who are retiring in Australia, and that most financial advisers in Australia don’t have the experience or competency to deal with UK pension schemes.
The UK State Pension can generally still be paid to you even if you live in Australia, so long as you meet the UK eligibility rules to receive such a pension. But receiving this will generally reduce your Australian age pension benefits dollar for dollar.
There is not much choice here – either you are eligible for the UK State Pension or you are not.
The real complexity arises when you have a UK private-sector pension. It you have a sizeable amount in one of these funds, then it may make sense to transfer it to Australia.
However, since 2015, the UK doesn’t consider APRA-regulated Australian superannuation funds to be ‘Recognised Overseas Pension Schemes’ (ROPS), because our funds have different rules in place that don’t meet UK requirements.
This is why some advisers recommend you start a SMSF and have the rules of your SMSF match those of the UK, so they qualify as ‘ROPS’ and can accept UK pension transfers.
Setting up a SMSF and transferring the funds across will come at a cost, which is where you would need to rely on a specialist adviser to recommend whether it is worth it.
Unfortunately, I cannot recommend any particular adviser or company, but I would suggest speaking to others who have been in a similar situation, as well as seeking advice from the UK government or the UK group ‘Money Helper’, which may be able to provide additional information.
Contacting the Financial Planning Association of Australia would also be a good idea, as it may be able to recommend a specialist.
Question 2: I’m a 66-year-old single male working full-time. Some time ago I withdrew about $300,000 from super and invested it in shares so as to be able to pay down my mortgage with interest payments.
Unfortunately, over the past few years I have seen that amount dwindle down to $275,000.
Should I pull out of the scheme and place the money back into super? I think it was called ‘transition to retirement’.
A ‘transition to retirement’ strategy can be effective in the following ways:
- When you reduce your working hours and want to top up your income from your super, i.e. going from full-time work to part-time work and transitioning into retirement over a period of time
- You retain the same work hours, but want to have additional income for a specified purpose. This could be to salary sacrifice more money into super, to pay down your mortgage sooner, or to pay for a planned large-sum expense.
To start a transition-to-retirement pension, you must have reached your preservation age, and you can only draw out a maximum of 10 per cent of your account balance each year.
If you do have a transition-to-retirement pension, this means that funds are still retained within the superannuation system, and they can be rolled/transferred back to your normal accumulation account at any time.
There are a few issues and questions to consider:
- What structure should you hold your money in? In superannuation, or under your own name in shares (or another asset)? The first step is to confirm what structure it is in now
- Many people call super an investment, but technically it’s not – it’s a tax structure in which you hold investments. You state you have all the money in shares, but you could choose to invest in a balanced fund, a conservative fund, or in cash etc. All these options can be inside or outside of super
- It’s important to choose investment options with which you feel comfortable. Your super fund can help you choose an appropriate level of risk for your circumstances. (Find out more about investment allocations within super here.)
- When you say the funds have ‘dwindled’, have you taken into account the dividends that been paid out, either to you, or paid directly off the mortgage?
- You had a goal of paying down your mortgage sooner – is this still the case? Your best investment option will depend on your financial goals, your investment time frame, and your appetite for risk.
Because of the tax advantages of super, it’s generally more favourable to hold your investments in this structure, so you may want to recontribute the funds to super.
Finally, it’s very important you understand any strategy or investment that you go into.
If you received advice to go into a transition-to-retirement pension, and/or to invest in shares, it’s up to the financial adviser, or whoever it was who recommended that strategy, to fully explain it to you and ensure you understand it.
In fact, financial advisers must abide by a code of ethics, which includes the following statement: You must be satisfied that the client understands your advice, and the benefits, costs and risks of the financial products that you recommend, and you must have reasonable grounds to be satisfied.
Many people feel embarrassed or self-conscious and don’t want to speak up, but this is the cause of a lot of future issues, both for yourself and for the financial adviser.
For the benefit of all parties, keep pressing them until you do understand, or else don’t proceed with the strategy.
Question 3: I’m 68 and have $450,000 in my super, and my wife has $600,000. I have $100,000 in a lump sum. Can I make a non-taxable payment into my super? I’m still working 38 hours a week.
Yes, as you are working more than 40 hours over a 30-day period, you have met the ‘work test’ and can contribute $100,000 as a non-concessional (after-tax) contribution.
Note that from July 1, 2022, you will no longer need to meet the work test to make non-concessional contributions.
Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
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