People considering moving UK retirement monies from the UK to Australia will have noticed that in the month since Brexit they need 59p for an Australian dollar instead of about 53p. This is not good news! They might be wondering what other ramifications are in store in the years ahead.
The UK government has not been able to restrict the movement of capital within the EU, even if they had wanted to. Once the UK is out of the EU then HMRC may be able to introduce further restrictions on QROPS. In many ways they have already done that to Australian ROPS. There will be a window for some time before they have this power. I have been in the UK for the past few weeks and been watching this issue with interest. The UK Prime Minister – Theresa May – has said she will not kick off Article 50 of the Lisbon Treaty before the end of 2016. This means we will not begin to get a clear idea of what kind of deal the UK will seek from the EU until 2017. In addition, there is a 2-year provision for the exit from the EU in the Treaty. In the meantime, the UK will abide by the UK treaties and laws, but not take part in any decision making. This means that (for example) they will not freeze UK State Pensions for people living in France like they have for British expats living in Australia.
There are many things the UK could do in the long run. They could introduce a tax on transfers similar to the US system. This, under the UK-Australia double taxation system, will not apply to pensions – only lump sums. If there are provisions in the transitional period to move to (say) Spain, there may be a rush before this option ceases to exist. Some could move back to the UK as access to health systems are restricted. I don’t know which flow will dominate.
A depreciating pound could lead to a jump in inflation, so those with defined benefits in the UK may enjoy larger deferred pension increases to offset the currency to some extent. But in the long run, the effect of Brexit may be deflationary.
It’s not easy to predict the future, so trying to think about what is the effect of Brexit at the moment is speculative. I think it is clear that restrictions on QROPS to stop billions of pounds being taken out of the UK is popular domestically in the UK. Many see expats as rich people taking advantage of tax systems and avoiding taxes like inheritance tax which they need to pay domestically in the UK. Defined benefit cash equivalent transfer values may increase nicely, but this could lead to tightening of the current restrictions on conversions to defined contribution arrangements including QROPS. Even at the moment, the need to obtain UK financial adviser analysis imposes practical and cost hurdles. Thirdly, currency fluctuations will need to be better managed.
NetActuary is available to assist Australian financial planners with these issues. We don’t work directly for individuals so that there can be no conflict of interests with our support services for advisers.
The NetActuary Team