Planning what happens with your Pension Fund or Superannuation when moving abroad should be a top priority

John Marcarian   |   27 Oct 2022   |   4 min read

Most expats moving overseas will have some form of pension or superannuation plan.

In my experience changing one’s tax residence does not of itself impact how that pension plan is treated in most jurisdictions. However, some particular complex jurisdictions, like the United States of America, have egregious tax laws that often cause unintended consequences for arriving expatriates.

A US Example

One of my clients moving to the US was adversely affected by the international tax rules of the US with respect to foreign pensions. My client, Peter, had built up a sizeable superannuation (pension fund) balance in Australia. It was the product of 30 years working in the film and entertainment business. Over the previous ten years, Peter had been a senior executive working for a chain of movie theatres in Singapore. As such, international tax had not crossed his mind much. Peter and his wife, Helen, had grandchildren living in Santa Monica. They were keen to retire and enjoy the good life in a new location. Peter had calculated that he would be able to fund his future Santa Monica lifestyle through a combination of personal savings and by accessing his Australian pension. Everything was set.

Pension payments in Australia were tax free, so Peter thought that Uncle Sam would also not tax them. Unfortunately, that was not the case. In the US, such income streams are taxable if you are a US tax resident. We stopped Peter sending his pension to the US in the nick of time. We collapsed Peter’s Australian pension and enabled Peter to take his capital to the US and invest it in the US tax efficiently. Disaster averted.

This case study highlights why, in order to enjoy your pension, you must consider the impact of foreign tax laws when you are changing jurisdiction

Countries have different rules

In delivering service to clients, we consider the impact of any overseas move on their home country pension. The underlying motivation for establishing a pension fund is typically based on a desire to save funds for retirement so that there is no reliance on government pensions. 

Thus, it means that having the maximum amount available in the pension plan that is not eroded by taxation, is a primary objective. It is folly to think that a tax-advantaged regime in one country with respect to pension funds will axiomatically apply in another country. That is rarely the case.

Moving your Pension Plan

We have extensive knowledge of the taxation issues relevant to pensions and superannuation. 

This enables us to assist clients with compliance and planning in relation to this important area of their lives. When expats leave their home country to move abroad, there are many aspects of tax that need to be considered prior to departure and pension fund planning is often a priority.

For those expats that have their pension fund in the UK, it may actually be worthwhile moving their pension with them. There are particular rules to address this. A Qualifying Recognised Overseas Pension Scheme (QROPS) is an overseas pension scheme that meets certain requirements set by Her Majesty’s Revenue and Customs (HMRC). A QROPS can receive transfers of UK pension benefits without incurring an unauthorised payment and scheme sanction charge.

In Australia, for example, pension funds are only considered to be complying under the governing legislation if they remain within the Australian tax jurisdiction. This means, that the trustee must remain an Australian resident. Therefore, in the case of an expat, relocation can inadvertently trigger a tax liability. Steps need to be taken prior to departure.

Complying in multiple countries

Similarly, many expats arrive in a new country with their home country pension fund in place.  Therefore, they must adhere to the rules in their home country and their arrival country in relation to this pension fund. One of the specialist skills we possess is in advising clients how foreign pension plans will be treated as they move around the globe. We can assist clients on QROPS and other similar regimes.

Moving abroad is an exciting time for most people. If you undertake proper planning with respect to your pension plan before you leave, then the thrill of arriving in your new country is not shaken up by the bad news that you have created unintended tax issues by leaving your home country in an unplanned way.

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