Understanding all of your superannuation
If you have worked overseas either permanently or temporarily, then you may have accumulated superannuation or pension funds in that foreign country. Two common overseas pension funds are UK Pension Funds and US 401k Retirement Plans.
It is important to understand your options relating to these funds and how they will be taxed under the Australian taxation system. In some cases, they may be adversely taxed under the regulations while, in other cases, it may be important to implement a transfer within six months of your arrival to avoid being taxed on the growth of the funds if, and when, a transfer is ultimately made.
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Issues To Consider
There are a number of important issues to consider including:
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How will the foreign pension funds be classified – do they qualify as a FIF or are they considered an eligible Retirement Fund? (Please note: The FIF rules are under review and careful attention should be paid to future developments in this area.) What level of tax will be paid on income and capital growth now and in the future, both offshore and in Australia? How does the timing of the transfer impact on the taxation liabilities (see above) and currency issues?
What are the costs associated with a transfer to Australia and where can the funds be transferred? In some cases, such as UK pensions, the transfer needs to be made into a specially endorsed superannuation fund known as a QROPS fund.
What is the business case for transferring the funds? Will long-term wealth creation be enhanced by transferring the funds now, or is there a time in the future when the transfer may be more feasible?
How secure are the providers of the overseas pension funds? Some overseas pension funds have experienced problems associated with ‘under funding’ and you may be more comfortable accumulating your wealth in the highly regulated and secure investment environment in Australia.
How much control do you have with the overseas pension funds? You may want to have greater control over the asset allocation and investment options associated with the pension funds. Additionally, you may prefer to have greater control over the trustee arrangements. Therefore, a transfer to Australia may be attractive from these perspectives.
What happens to your foreign pension funds if you pass away? It is important to understand what happens in the event that you pass away. Will there be any reversionary arrangements for your spouse or partner, or will you lose the entire holdings?Another taxation issue to consider relates to potential inheritance tax, which may apply in the country where the foreign funds are held. At this stage, Australia does not have an inheritance tax.
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Strategic Wealth Can Help
These are some of the important questions to address relating to your foreign pension funds. At Strategic Wealth, we can help you work through these issues and develop an understanding of the attractiveness (or otherwise) of transferring the funds to Australia.
We work closely with experienced service providers who can assist with the review of the above issues and manage transfer activities in the foreign countries. If your foreign pension fund holdings are large then careful planning may be needed to ensure that the transfer is as tax effective as possible, both from an Australian and foreign country perspective. In some cases, a progressive transfer of the funds may be required and we can assist you with understanding the benefits and consequences of such a program.
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Considering the Aussie Dollar
The Australian Dollar is a volatile currency and large movements can impact positively or negatively on the value of your holdings. This is yet another issue to consider and you may need to develop a currency strategy to ensure that the final value of the holdings transferred is maximised.
Your decision relating to the transfer of foreign pension funds should only be made after careful consideration of all of these issues. If you would like assistance in this specialised area, please contact us on <>.
