Foreign Pensions - Withdrawal, Transfer and Australian Tax Impact
It is now very common for Australian retirees to have an entitlement to a foreign pension, either because of an international work assignment or because they have worked overseas before migrating to Australia. They generally take two forms: Social Security payments which are only available as income streams on reaching retirement or private pension plans which may or may not be transferable to Australia as a lump sum before or at retirement.
Please note that foreign Social Security entitlements are almost only available as income streams (pensions) - most are "unfunded" and therefore you cannot access a capital value for transfer into your Australian superannuation scheme. There are some rare exceptions, for example where Australians have worked for very short periods in overseas countries and social security contributions are refunded.
As far as private pensions are concerned, it is recommended that you seek specific tax advice before arranging any transfer/withdrawal of your overseas pension funds either into superannuation, or otherwise. There are relatively few situations where a transfer can be arranged without tax consequences, and from a tax perspective much depends upon whether the overseas fund can be considered a "foreign superannuation fund" (FSF) for Australian tax purposes, or otherwise.
If the pension fund can be considered an FSF, and UK pension funds are an example, then the funds can be transferred into an Australian superannuation funds with no Australian tax applying if the transfer occurs within six months of becoming resident in Australia again, or otherwise tax is payable on the growth of the funds from the date of your return to Australia. Note that contributions made to your superannuation fund from a foreign pension fund are largely considered as non-concessional contributions.
Alternatively, if the foreign pension fund does not meet the requirements to be considered an FSF, then any growth in the fund (not just from the date of residency) may attract taxation at your marginal tax rate and any withdrawal should be carefully managed managed to minimise any tax payable. Funds that may not be considered an FSF include US 401(k)'s, IRAs, Canadian RRSP's and Singaporean CPF's.
Specifically New Zealand
Pension transfers between Australia and New Zealand represent a special case, with a "Trans-Tasman Portability Scheme" in place since July 1, 2013. The scheme allows for the transfer of retirement savings accumulated in either Australian superannuation or KiwiSaver accounts to be transferred, without subject to taxation, between the two countries. It applies to Australians permanently migrating to New Zealand and New Zealanders who are permanently migrating to Australia, and New Zealanders who have worked in Australia wishing to repatriate superannuation to New Zealand.
There are a number of details attaching to these transfer arrangements that need to be fully understood and should be discussed with your super fund or directly with KiwiSaver. For example, the Kiwisaver balance contributed to Australian superannuation cannot be accessed until age 65 and your sending Australian superannuation fund needs to be regulated by APRA, with the result that transfers cannot be made from self managed superannuation funds (SMSF) because they are regulated by the ATO.
Remember that it will not always be beneficial to withdraw and transfer an overseas pension into your Australian superannuation fund, and that is particularly the case if you have a final salary or defined benefit fund which provides for indexation of pension payments. Again you will need specialist advice to determine the best approach.
In terms of Centrelink's treatment, any benefits received on a regular basis from overseas are included in the income test and Centrelink will require you to state the benefit when you lodge your Australian age pension claim. If you have been an Australian resident for 10 years or less then there is a "dollar for dollar" reduction made in your Australian pension. If you have been a resident for more than 10 years, the income is taken into account in much the same way as any other income - with a reduction in the pension applying if your income exceeds the current threshold.
If you would like to arrange professional tax or financial planning advice with respect to a foreign pension please click the button below and and we will make arrangements for an advisor to contact you accordingly.