International Adviser reported last week that the Australian government has introduced a lifetime cap of A$500,000 (£260.5k, $381.2k, €331.9k) on after tax or non-concessional contributions made into a superannuation scheme – a state-backed savings arrangement where people invest in funds that will replace their income on retirement.
In stark contrast, people in the UK have a lifetime allowance for pension savings of £1m – reduced last month from £1.25m.
The cap, which will be backdated from 1 July 2007, could mean that UK expats transferring more than the £250,000 limit could face a 49% tax hit on the excess.
Estimates reveal that the new limit could affect as many as 15,000 Britons living in Australia – who under the previous rules could either save up to $180,000 (£91,500) a year or $540,000 (£275,000) over three years.
“These changes affect a lot of people that are currently saving high amounts into their pensions.
“It means that even if UK nationals are getting tax relief on their savings in the UK they may have to consider using other savings vehicles to put any excess money because if they exceed the £250,000 cap it will be a big problem,” said Alex Norwood, a financial adviser at Montfort International, an IFA firm that caters to British expats living in Australia.
Move away from UK model
Changes to Australia’s lifetime pension allowance indicate that the country may be moving in the opposite direction to the UK in terms of shoring up retirement income for future generations.
Faced with an ageing population and a dwindling savings rate, the UK introduced pension reforms in April last year, giving people unrestricted access to their retirement pots.
In comparison, last week Australia’s minister for small business and assistant treasurer Kelly O’Dwyer said the government will “enshrine in law” that the main purpose of a superannuation is to provide moeny for retirement – a signal that it’s unlikely to adopt the pension freedoms seen in the UK.
Other reforms
Other proposed reforms, due to come in from 1 July 2017, include reducing the concessional caps to A$25,000 per year and removing the Australian work test for people aged between 65 and 75 who want to contribute to the Australian Super pension scheme.
There has also been a change to the Australian superannuation withdrawal phase, with a balance cap of A$1.6m being introduced on the total amount which an Australian resident can transfer into the tax-free retirement phase (tax to apply above this figure) from 1 July 2017.
