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Thousands of Australian residents have had their British pension transfers to their Australian super funds frozen, leaving their money in limbo.
Not only is the pension transfer market closed. Some Australians who have recently had their pensions transferred may be liable for a British tax penalty of 55 per cent of the transferred amount.
Talks are taking place between the Australian Treasury officials and their British counterparts to try to resolve the impasse after British authorities froze the transfers.
Thousands of Australian residents applied to have their British public service pensions transferred to Australian funds ahead of a British-imposed deadline of April 6, after which time no further transfers would be allowed.
The freeze affects both Britons who have come to Australia and Australians who have worked in public sector jobs in Britain, such as teachers and nurses.
Private sector British pensions were unaffected by the deadline applying to public sector funds and could be transferred at any time.
However, with the blanket ban on transfers, private sector transfers are also frozen.
Simon Harvey, a director of BDH Sterling, a firm that provides advice on pension transfers, says the freeze impacts on a significant number of people and he hopes an early resolution can be found.
"We are talking about people's retirement savings and the lack of communication is leading to frustration and concerns from clients," he says.
There are advantages in transferring British pensions to Australia.
These include no restrictions on withdrawing money from most Australian super funds after age 60 and retired, where usually no tax is paid on withdrawals.
In Britain, most public sector funds pay an income stream to retirees, with limits to lump sum pay-outs. And the income is assessable for income tax. Most private sector schemes allow lump sum withdrawals on retirement. However, only the first 25 per cent is generally tax-free, with the balance assessable as income.
Because of the advantages of shifting British pensions to Australia there was a rush to get transfer applications in before the April 6 cut-off date.
British authorities cite small differences in rules regarding early access to superannuation between the two countries as the reasons for the freeze. The British tax authority, HM Revenue & Customs, has determined Australian funds, with the exception of the Local Government Superannuation Scheme, are not in compliance with UK early release rules.
A key sticking point is that, in Australia, early access to super can be triggered by financial hardship, which is not possible in Britain.
Pauline Vamos, the chief executive of the Association of Australian Superannuation Funds, says there are ways around the problem but it will take time.
One possible solution is for super funds to create a special category within the fund to receive British pension transfers. It would have different early release rules to the other fund members. Access to benefits would be restricted until the member turns 55 or retires due to ill-health - in accordance with British law.
Months before the deadline, Australian funds were given fair warning by HM Revenue & Customs that they needed to be compliant with British law. In response, some Australian funds changed their trust deeds to create a special category within their funds to receive transfers that would only be released to members in accordance with British law.
But the changes to trust deeds most likely conflict with overriding Australian law that requires all members of a fund to be treated equally, including the rules for early access to super.
Vamos says it likely that Australian law or regulations would have be modified to give certainty to super funds so they can create a special category within their funds to receive British pension transfers without being in conflict with superannuation law.
Sydney Morning Herald
