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1. UK Pensions

Q: My client has a United Kingdom (UK) pension which they wish to transfer to an Australian Super Fund. Can this still be done?

A: UK pension savings can still be transferred to an Australian super fund, however, only a limited number of Australian super funds can accept UK pension transfers due to restrictions prescribed by Her Majesty’s Revenue and Customs (HMRC).

The few Australian super funds that can accept UK pension transfers include:

  • SMSFs that restrict membership to persons aged 55 or over
  • specialist retail funds that cater for UK pension transfers for persons aged 55 or over
  • public service pension schemes set up or approved by the Australian Government.

If an SMSF is established to accept the transfer, there are onerous requirements on the SMSF to report back to the UK Authority HMRC.

Tax issues

UK pension transfers within six months of becoming an Australian tax resident are not assessable to the client. If the transfer occurs after six months of becoming an Australian tax resident applicable fund earnings will be included in the client’s assessable income unless they elect for these earnings to be assessable income of the Australian super fund. Applicable fund earnings are effectively the growth in the UK pension since becoming an Australian tax resident. The election can only be made where the client has no interest remaining in the UK pension after the transfer.

Contribution cap issues

A UK pension transfer is considered a personal contribution to an Australian super fund, therefore, the ordinary requirements to make a personal contribution apply. The contribution, or parts thereof, may be categorised as a non-concessional contribution, concessional contribution and applicable fund earnings. Applicable fund earnings do not count towards the contribution caps if the UK pension is transferred to an Australian super fund after six months from becoming an Australian tax resident and an election is made to tax these earnings within the fund.

The caps on non-concessional contributions ($100,000 per financial year if the total super balance is less than $1.6 million or $300,000 using the bring-forward, if eligible) and concessional contributions ($25,000 per financial year, which may be increased by unused caps carried forward, if eligible) limit the amount which can be transferred to an Australian super fund.

2. Non-concessional contributions

Q: My client’s spouse passed away on 30 June 2019 and my client who is age 60 is now in receipt of a reversionary account-based income stream. As at 30 June 2019, my client had $100,000 in her personal super account and a $1,700,000 reversionary account-based income stream. Can she make a non-concessional contribution (NCC) in the financial year ending 30 June 2020?

A: As your client’s total super balance (TSB) at 30 June 2019 was $1,800,000 your client’s NCC cap is nil. This means any NCC in the financial year ending June 2020 will exceed the NCC cap.

Your client’s TSB at 30 June 2019 includes the reversionary account-based income stream even though it is not recorded on the transfer balance account until 30 June 2020. The TSB should not be confused with the transfer balance cap which limits the amount that can be transferred into a retirement phase income stream, such as an account-based income stream.

Had the reversionary income stream not been an account-based income stream, for example if it was a defined benefit income stream, then the value recorded on the TSB would have been delayed until the time it is recorded on the transfer balance account. All reversionary income streams are recorded on the transfer balance account as a credit 12 months from the date of death. However, the value of a reversionary account-based income stream, including a reversionary term allocated pension, immediately counts towards their TSB which is measured on 30 June.

In relation to your client’s transfer balance account your client will need to commute $100,000 by taking a lump sum commutation out of the reversionary pension before 30 June 2020 to avoid excess transfer balance cap issues. Note death benefits cannot be rolled back into accumulation.

3. Bankruptcy

Q: My client is thinking of applying for bankruptcy, are their funds in super protected from creditors?

A: A bankrupt’s interest in a super fund has the special status of being property not divisible among creditors. Superannuation has a ‘special’ status because an unlimited value is protected from creditors.

This protection is not extended to superannuation contributions made by the bankrupt, at any time before bankruptcy, if the trustee in bankruptcy can establish that:

  • the property would probably have become part of the bankrupt’s estate or been available to creditors if the contribution was not made


  • the person’s main purpose in making the contribution was to prevent (or hinder or delay) the property becoming divisible among creditors (‘to defeat creditors’).

A contribution which is ‘out-of-character’ with any regular pattern of contributions may be recoverable by the trustee in bankruptcy and divisible property among creditors, if the circumstances indicate that at the time of the contribution the client was unable to pay all their debts as they became due and payable.

Payment from a super fund

With the exception of pensions, all payments the client receives from a super fund after they become bankrupt are protected and not divisible among creditors. If the client receives a superannuation lump sum after they become bankrupt, the money is protected from creditors and if they use that money wholly or substantially to purchase other property, that other property is also protected from creditors.

4. TPD payments for super

Q: What needs to be considered when my client is deciding whether to take a lump sum, income stream or to retain the funds in their super after successfully claiming on their Total and Permanent Disability (TPD) cover?


My client recently suffered an injury which has made him permanently incapacitated. He subsequently made a successful claim on his Total and Permanent Disability (TPD) cover within his super. He has obtained medical certification from two legally-qualified medical practitioners confirming he is unlikely to ever return to work in any capacity for which he is reasonably qualified due to education, experience or training.

A: The following table summarises the main points your client should consider for each option. Next month we will explore the issues associated with drawing TPD from super in more detail.

Lump sum
  • Clear debts and meet up-front expenses, for example, paying for modifications to their home.
  • Significant tax may apply if the client is under preservation age (up to 22% tax on taxable component). Between preservation age and under age 60, the taxable component above the low rate cap is taxed at up to 17%.
  • The tax-free component should be increased by the fund.
Income stream
  • Satisfy ongoing expenditure requirements.
  • Tax-free earnings within the account-based pension.
  • Tax-effective income if under age 60:
    • 15% tax offset on the taxable component
    • No tax on the tax-free component.
  • Tax-free income from age 60.
  • Transfer balance cap of $1.6 million (2018/19) applies.

Retain funds in super

  • Tax-effective environment, maximum tax of 15% on fund earnings.
  • Super is not assessed under Centrelink means tests if under Age Pension age.
  • May claim Disability Support Pension (if eligible).
  • A partner may apply for the Carer Payment and/or Carer Allowance if they provide care.

5. Commonwealth Seniors Health Card

My client currently has the Commonwealth Seniors Health Card (CSHC) and has just realised a large capital gain. The increase in adjusted taxable income because of this gain will result in the client exceeding the CSHC income threshold. When should my client advise Centrelink of this anticipated increase in their adjusted taxable income and when will they lose their card?

CSHC holders are required to notify Centrelink within 14 days if their adjusted taxable income, plus any deemed income from account-based income streams, combined with that of their partner exceeds their CHSC income limit.

While your client may be aware that their income, because of the gain, may exceed the threshold it is dependent upon the Australian Taxation Office (ATO) making the assessment. To enable the ATO to do this the client should report the event after they have filed their income tax return and after they have received the ATO tax notice of assessment. When they notify Centrelink of their increased income they will lose their CSHC.

This process differs to any additional deemed income which your client may receive because they have started an account-based pension. This type of event would need to be reported within 14 days of purchase.

In some limited circumstances, Centrelink may ignore a one-off increase in income. In these situations, the client may give an estimate of their income for the current tax year provided it is within the CSHC income limit, see Guide to Social Security Law - Assessment of Income for CSHC.

More information

If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.