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Forward Thinking Magazine : August 2010
16 Macquarie Adviser Services How can advisers use the taxing point representation? Highly and not-so -highly skilled labour is becoming more mobile globally. It follows that Australian financial advisers will increasingly be asked to advise clients on their interests in foreign pension/superannuation schemes. Understanding the taxing points and concessionality of a foreign retirement income model may be helpful in determining whether an existing interest in a foreign scheme should remain where it is or be transferred to another jurisdiction (e.g. Australia), and the timing of that transfer. Example 1: Australian resident with a UK pension scheme interest The United Kingdom (UK) uses an ‘EET’ retirement income model. Whilst a client’s interest in a UK pension scheme remains in the UK, returns will accrue in a largely tax free environment. Transferral of the interest to Australia (TTE) may result in returns being subject to taxation whilst in the accumulation phase, so transfer doesn’t initially appear attractive. However, if the client is about to retire, it may be attractive to transfer the interest to an Australian superannuation fund, where benefit payments to the member are tax free after age 60. Transferring an interest in an EET scheme to a TTE scheme just prior to retirement can provide an overall EEE result. Alternatively if the interest remains in the UK scheme during retirement, the pension payments will usually be assessable in Australia (possibly less some deductible amount) and taxed at the individual’s marginal tax rate (i.e. an EET result). The decision to transfer may involve many further considerations, such as the Australian contribution cap restrictions, other existing benefit entitlements and future benefit entitlements in the UK scheme, currency exchange rate implications, etc. Note also that generally transferral from a UK pension scheme to Australia can be achieved without UK taxation implications if the receiving Australian superannuation fund is registered with the UK regulators as a Qualified Recognised Overseas Pension Scheme (QROPS) – Macquarie Accumulator, Super Manager and Pension Manager are QROPS registered. For a more in-depth analysis of the issues faced in transferring benefits from the UK to Australia see Expatriate Games Part IV: Overseas pension entitlements: to transfer or not to transfer?