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Superannuation for Australian Expats
Legislation was introduced into the Australian Parliament this week to increase compulsory employer super guarantee (SG) contributions from 9 per cent to 12 per cent. This is to be done in regular stages over the next seven years and the current age limit of 75 for making contributions will also be removed.
We deal with superannuation elsewhere on the site, and more extensively in Exfin, but we thought now might be the time to address some of the regular Q&A's we received regarding superannuation. These are general responses and are not intended as advice - please contact Exfin if you wish to arrange specific professional advice.
Can I continue to contribute to my superannuation fund while overseas as a non-resident?
In general, yes, and they will be treated as non-concessional, or post-tax, contributions to your superannuation fund. The significant exception is in relation to self managed superannuation schemes, where contributions from non-residents could have very significant (and negative) tax implications. You should not contribute to a self managed superannuation scheme without the approval of an experienced tax advisor.
Should I contribute to my superannuation fund while overseas?
In many situations it will not be tax efficient for you to contribute to Australian superannuation whilst overseas. For example, in many countries pension contributions are tax-deductible if made to a complying pension fund - Australian superannuation funds would not normally be "complying" for the purposes of overseas tax authorities. Additionally, in some situations overseas you will be able to invest savings in zero tax environments - while superannuation offers a low tax environment, taxes still apply on earnings and capital gains. A possible exception is where you have a positively geared rental property in Australia - contributions to superannuation may effectively reduce the tax rate you are paying - see a tax advisor.
You need to research whether, and on what basis, you can recover or withdraw contributions and earnings accumulated in foreign pension funds. Situations vary significantly. For example, UK and Irish pension funds can normally be withdrawn and transferred into Australian superannuation with no tax applying - whilst 401K and Canadian RRSP's can be withdrawn and taken as cash, although withholding tax will apply in relation to RRSP's. You will need professional advice in this area.
However, any savings regime is better than no savings regime - and if you feel comfortable continuing to contribute to Australian superannuation while overseas, and don't wish to explore other mechanisms, then you should continue to make regular contributions.
Are there any limits on contributions to Australian superannuation?
Limits do apply in relation to non-concessional contributions made to Australian super - generally, you may contribute a maximum AUD180K per annum, or AUD540K over three years. Hence, you can see that the limits are quite reasonable and allow most people the flexibility to transfer their overseas pension balances into superannuation in a single transfer. Individuals with large balances do need financial planning - there are heavy penalties applying where there have been excessive contributions. Note that after age 64 additional restrictions on contributions apply and advice should be sought.
Expatriates will know that there is one certainty they can rely on, and that is that exchange rates will be volatile. We very much take the view that contributions into superannuation should be done regularly - don't try and time the market! Just make sure that you have competitive exchange rates and transfer costs - this often means looking beyond the banks.
Current exchange rates are horrible - should I transfer my pension into Australian superannuation?
This is an unanswerable question. At the present time, although there have been recent downward adjustments, the Australian dollar is still sitting at an historically high rates against a number of currencies, including sterling and the Euro. For that reason, many Australian expatriates and migrants to Australia have left funds offshore in the hope that "things will improve".
There is nothing to say that this strategy is not correct - but some have now left deposits in cash, earning virtually nothing, for periods of three years or more, so the opportunity cost of this strategy has been enormous. In fact, it is so enormous that many individuals and families are effectively feel "locked" into the strategy.
Any alternatives have to be the subject of discussions with appropriately experienced financial planners and tax advisors. However, one alternative may be to bring those funds (or part of them) into Australian superannuation and retain them in sterling, USD etc., Superannuation funds will shortly exist with the flexibility to hold foreign currencies, international shares and even foreign property. At least in this situation, any future gains may be generated in a more tax efficient environment.