POM PENSION COSTS
My husband and I have brought over our teachers' pensions from Britain. It is a decent amount, thank goodness. We have been told we will have to pay tax on it. However, we already paid tax for it in Britain and it is for work that was done there. Our British pension from pre-1999 surely has nothing whatsoever to do with the Australian Tax Office. We're flabbergasted. How can we minimise this tax burden? A.B.
Basically, a lump-sum payment from a foreign super fund is tax-free if you receive it within six months of becoming an Australian resident. For payments received more than six months after gaining residency (or ceasing foreign employment), you have a choice of adding the fund earnings to your assessable income or placing the money in a super fund, where it will be taxed at 15 per cent.
Since you are working, I assume you are paying tax at a higher marginal rate than 15 per cent, so the second option is probably better.
Under British rules, a pension can only be cashed in and brought to Australia if the money is placed in a QROPS (Qualifying Recognised Overseas Pension Scheme), which is required to report payments for the next 10 years to HM Revenue. Your QROPS fund would be required to have explained this process to you.
BE WARY OF GOING IT ALONE
I am 60 years of age with no debts. I own my home, valued at $750,000, an accumulation super balance of $1.6 million with Sunsuper, and $100,000 in blue-chip shares. I retired in July with a payout of $450,000, consisting of leave and an eligible termination payment. The net payment of $350,000 is sitting in a bank earning interest of 4 per cent, subject to the highest marginal income-tax rate. I will need to have about $58,000 to live on yearly. I am contemplating starting a self-managed super fund with the $350,000 and the $100,000 in shares and transfer the $1.6 million accumulation super to a pension (income) account. The combination will provide me with the income I need. Any suggestions? P.S.
I'm always wary of recommending an SMSF other than to people who are accustomed to running an investment portfolio, but I assume you have been running your share portfolio for some years. However, it would be a mistake to think an investment portfolio can consist solely of shares. The obvious points are (a) make sure you have determined the capital-gains tax before transferring your shares into your new super fund; and (b) beware of exceeding the $450,000 cap for non-concessional contributions. The government's pathetic system of minor refunds, an attempt to reduce criticism of the 45 per cent excess contributions tax, only applies to concessional contributions.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Financial Ombudsman, 1300 780 808; pensions, 13 23 00.