14 month Australian expat super fund restriction set to end

The first Australian retail super fund to be recognised by UK authorities is set to be open to investments from late October, ending what has been a 14-month deadlock where expat investors had just one single pooled option to choose from.

The Australian Expatriate Superannuation Fund (AESF) is set to be the first pooled super fund in Australia to be added to the list of recognised funds since UK authorities banned transfers to hundreds of Australian super funds 15 months ago.

Dannie Fox, managing director of Australian Expatriate Superannuation Fund, told the Australian Financial Review that the fund hopes to capture around A$100m from UK nationals in its first year of operation.

“Apart from LGIA super and a handful of non-public offer funds, we are the first Australian fund to be placed on the list of Recognised Overseas Pension Schemes which we think is significant” she said.

The total value of British pension funds that has been transferred to overseas schemes is estimated to be A$2.6bn (US$2bn).

LGIA Super

The only Australian fund to remain self-assessed as compliant and stay on the new Recognised Overseas Pension Scheme (or ROPS) was the Queensland-based LGIA Super, making it the only place that expats could switch their pensions to.

Since then, and with the help of a ruling from the ATO, hundreds of self managed super funds have been able to be recognised by the UK’s HMRC as compliant and yet only a single pooled option was made available to investors.

The fund charges an establishment fee of $880, an annual fee of 1.5 per cent plus the costs of the underlying fund managers. The transfer of balances to recognised overseas pension schemes are limited to those aged 55 and up, Australian Financial Review said in its report.

The AESF fund will use the Tidswell Master Superannuation Plan developed and operated by the Adelaide-based Tidswell Financial Group.

UK compliance ‘concerns’

UK-based expat pensions specialist Geraint Davies, managing director of Montfort International, said that he has “concerns” about the planned release and the firm’s UK experience.

“We designed a pension transfer product for Australia some 20 years ago – this was no easy task,” said Davies. “Having just had to warn a seriously major Australian superannuation provider that they were going to cause one of their potential clients to break UK rules.

“I simply can’t see how this firm are going to be able to deal with UK compliance issues – its all well and good having a product, but QROPS is not a product it’s a concept and that demands seriously high levels of cross border technical expertise,” he said.

July 2015 ruling

Last July Her Majesty’s Revenue and Customs office declared that hundreds of Australian super funds were no longer compliant.

Under the old Qualified Recognised Overseas Pension Scheme (or QROPS) 1652 of the 1653 Australian funds were removed from the HMRC’s compliant list overnight bringing an immediate halt to any expat looking to transfer their balances.

Transfers from a UK pension fund to an Australian super fund are counted under the non-concessional contribution limits.

As reported, a reduction of the annual caps from $180,000 to $100,000 announced last month by Australian Treasurer Scott Morrison will heavily reduce the amount of cash that UK nationals can repatriate.

‘Bring forward rule’

Under the old ‘bring forward rule’, where an investor can bring forward three years of non-concessional contributions, an ex-pat may transfer balances of up to $540,000 from a UK pension fund to a recognised super fund.

Under the new annual caps of $100,000 that will be in place from July 1, 2017 the amount of money able to be transferred under the non-concessional contributions caps will be reduced to $300,000.

ABOUT THE AUTHOR
Gary Robinson
Deputy Editor, International Investment and Head of Video at Open Door Media Publishing. A fully qualified journalist and filmmaker with more than 20 years' financial services experience, both as journalist and originally as an IFA.

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