A Charity offering personal help and advice for all serving and former members of the Royal Navy, Royal Marines, their Reserves and Families


Published 28/08/2019 10:58:00, by Marina Maher

For many in the British Armed Forces the lure of moving to Australia and starting a whole new life Downunder has become more common than it was in the past. It is not unreasonable to think that you would serve in the UK forces for a time and then use the skills as a stepping stone to either move into civilian life in Australia, or to alternatively join the Australian military forces and serve in a different environment. The choices can be tempting, particularly the climate.

At the same time you are fortunate to have a very good pension scheme that will provide an indexed pension with the option of a tax free lump sum if taken in the UK. For those military personnel who migrate to Australia, there are a few issues that you need to understand before making any long term decisions that relate to your military pension accrued to date in the UK pension scheme.

In cases where payment has not commenced, there used to be an option to transfer an equivalent lump sum value for the entire pension value across to a new scheme in Australia and then to draw a pension from the new Australian scheme. That option no longer applies,  however the 25% tax free payment that you are able to access in the  UK is still available but you need to understand that when it is referred to as a Tax free cash payment it is tax free in the UK but if you have migrated to Australia and are an Australian tax resident when you retire and draw the payment you will be in for a bit of a shock. Whilst the payment is tax free in the UK part of it will be treated as taxable income in Australia and will be taxed accordingly. (The taxable portion will be a function of the total pension value as at the date you arrived in Australia compared to what that total value is at the time you draw it from the Military pension scheme). By way of example, assume the total value of your Military pension fund when you leave the UK is say 100,000 pounds but the total value has grown to 200,000 pounds by the time you retire and commence a pension and draw the Tax free cash amount. On the face of it 25% represents 50,000 pounds of the fund value at retirements. In the UK that amount is paid to you tax free. However, if an Australian resident and taxpayer when you draw the funds half of the 50,000 would still be tax free in Australia but the other half would be taxable as income and taxed accordingly. The calculation is not exactly as above but for the purposes of explanation it does portray the situation.

Until 5th April 2015 UK Pension funds could be transferred to an Australian Superannuation fund with limited tax consequences, on transfer with the biggest benefit being the ability to draw a pension in retirement in Australia completely tax free. That was a huge bonus and now still is for those with personal and private pension funds. With effect from April 6, 2015 all UK government supported pension funds were effectively frozen and can no longer be transferred to any other pension fund, either in the UK or offshore.

Current status therefore is that if you move to Australia your British military pension cannot move with you as a lump sum but will mean that at retirement you will receive an indexed military pension, which is taxable in both the UK and Australia, but should not be taxed by each at your expense. There is a double tax treaty in place that allows any UK tax paid to be offset against any Australian tax liability.
The other change introduced at that time also restricted any personal pension plans to be transferred to Australia until the member reaches age 55. The Australian Superannuation system has a few provisions enabling access to limited funds under age 55 but there are no such provisions in the UK.

Whilst a move to Australia is certainly an attractive option from a lifestyle perspective it is no longer as attractive from a financial perspective as it used to be.

The military pension will be indexed each year, but will be taxable. Previously the pension drawn from the funds if transferred to Australia were tax free.

You may still also be entitled to some state pension if you worked more than 10 years in the UK before leaving for Australia, but also understand that once you commence drawing your UK state pension benefits there is no indexing of the pension amount you receive. That may change in the future but that is how it sits under current rules.

What all of this means is simply that before you decide to accept the challenge and relocate to Australia that you also need to consider the financial implications of leaving your military pension benefits in the UK and how that may affect your longer term retirement plans. Also understand that the Australian Military pension scheme is also very attractive so that needs to be taken into account.

At a glance, the UK Armed Forces Pension:-

  1.  Pays an indexed pension for the life of the pension owner.
  2.  Pays a reversionary pension to the spouse for her life. (Usually 60% of the previous pension amount).
  3.  Allows a partial lump sum to be paid tax free at the time payment is commenced.(Only tax free if a UK resident when received).
  4.  All pension paid is fully taxable in either the UK or Australia.
  5.  If living in Australia in retirement Pension payments will be subject to foreign exchange fluctuations and will fluctuate in line with the exchange rates applicable at the time of payment.

The Australian Superannuation system:-

  1.  Australian superannuation is generally paid by the employer as part of the employment contact, and should allow members to  make  additional contributions to their superannuation account up to a limit which currently sits at $25000 per annum.
  2.  Upon the death of the fund owner there is a 100% reversion to the spouse which can be as a pension or as a tax free lump sum.
  3.  Upon the death of the spouse the full proceeds of the fund will be available to children but will be subject to some tax at that time.
  4.  When the pension owner is aged 60 or more the fund pays both pension and lump sum withdrawals totally free of tax.
  5.  The life of the fund, the investment mix and the amount drawn will determine the life of the fund. The Australian fund is the equivalent of a UK Money Purchase scheme which can run out if not managed properly.

After considering the above, the decision should always be what is best for you and your family. Some initial advice may put you on the right track and ensure your decision is the right one. You will probably also have other UK based assets and investments. Some advice on those and how they are treated for tax purposes in Australia will also be invaluable in the whole migration process.

Best wishes

Clive C Herrald CFP
Level 7
197 King Arthur Terrace Tennyson BRISBANE OLD 4105 Phone: 61 7 38925300
Fax: 61 7 38925884
Mob; +61 418 885048
E-Mail: clive@globalpensiontransfers.com


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