This is primarily a tax related problem.TLDR: Does trustworthy financial advice in Australia, including in relation to UK pensions and a US 401k, exist?
Hi All,
I think my spouse and I need financial advice but our situation is a bit unusual and I've been unable to find a planner that can help.
Our situation:
Me: 47, Aus/UK citizen
$390K Aus super
£200K in UK pension
Spouse: 54, Aus/UK/US citizen
$220K Aus super
£80K UK pension
USD430K in 401K
- Two kids (10 and 13 in private school).
- Lived in Australia for 10 years, not planning to move anywhere in future.
- Home worth about $3M, mortgage $1M of which $650K is offset or in redraw.
- £230K cash - soon to be moved here to fully offset/pay mortgage.
- Pre-tax combined income roughly $500K per year.
- Only debt is a novated car lease.
We really need advice on what, if anything, to do with our overseas pensions. Plenty of places seem to offer QROPS transfers for the UK but all seem to be interested in transfers only (presumably because they make money on it) without considering whether this is actually in our best interests. As far as I can tell there's not much we can do about the 401K except draw it down and be taxed at marginal rates when in the retirement phase.
Assuming we need advice, does independent, experienced advice exist? Someone who can also offer general financial planning advice would be a bonus. Or am I seeking a unicorn? I'm reasonably financially savvy but I'm not confident we can navigate this on our own.
For that you would need accountants familiar with the Australian-US and Australian-UK situations. Since you are non-resident in UK UK tax is not highly relevant. So you need Australian-US tax expert. that usually costs, but there should be a lot around?
On your UK pensions:
- set to "fire & forget" - pick a low cost fund or funds, and just let them ride. I would imagine not liable for Australian tax until you draw on them?
- if there isn't a "Lifestyle" fund that appeals (usually they have too much UK equities) then a simple global equity index + a bond fund (usually global bonds, sterling hedged). Set percentage in bonds = 110- your current age, and just adjust it every year or so. Done and dusted.
When you actually retire (right now age 55 but being raised to 57) you can either pull it out and pay the tax, or get an annuity (I almost always suggest inflation-linked annuities, at least now that index linked gilt yields (which drive annuity rates, that and mortality) have gone back up, because the whole point of annuities is to hedge longevity risk, and it's in the long run that inflation gets you - but you have to take a whole portfolio view).
Don't forget to check your UK State Pension allocation. *Except* it's frozen once you emigrated, if you emigrate to Canada or Australia, but *not* to EU or USA. Saves the UK government about £450m pa because after Spain, those are the 2 leading destinations for UK emigres. So they never fix a manifest unfairness.
I had a post about paying up back years on NI if you search this board (Martin Lewis at Moneysavingexpert.com has a helpful video, but the online portal is not available to non-residents I don't think). There's a (closing) window and it's a pain in the neck way of doing it (you call, you sit in a queue for literally hours, but they were very helpful when they answered - the operator gives you a number to attach to your payment and puts a note on your account that you are doing this-- try calling from 8AM on a Monday, 8AM seems to be a good time to do this). But if you ever felt that you, or your widow(er) might move back to the UK, then the State Pension would then be restored (basically you need 35 years of paying in to get full state pension). The calculation is roughly £900 now buys £250 pa of state pension, inflation indexed, from age 67. Investment bargain of the century - but not if you retire to Canada or Australia.
(Amusingly we have to get a solicitor to sign paperwork every year or two to prove that my aunt (in her 90s) is still alive, and thus eligible for widow's pension of several hundred pounds a year, despite never having live there - I think my uncle had it in mind that he might retire back to Old Blighty, so he paid in for the 40 years or whatever it was after he left the country). Make sure the NI Office knows your Australian address - it's all accessible via your NI numbers.
This sounds like small beer, but it's worth the effort.
I don't know how UK NI years interact with US Social Security, but there has been discussion here about Equalisation treaty, and it's something you should investigate on behalf of your spouse, because US SS is much more generous than UK State Pension (to say the least). So eligibility for US SS is really important if you can get it.
I concluded (on behalf of a friend, plus reading about them in the personal financial press) that QROPS are basically a minefield. I also believe that many people who can't cut it as Independent Financial Advisers in the UK wind up as IFAs abroad where there is less regulation. Channel Islands, Gulf etc. There are a lot of innocent victims out there - people who have worked their careers internationally, who fall into the hands of these types. Even if they are not actually crooked, the commission incentives are not to the client's benefit.
I don't normally suggest people own rental property outside their principal residence. For reasons of potential hassles w buildings and tenants, risk of a property market collapse** (you can always keep living in the house you own, whatever it is worth) etc. However it might be worth investigation in the case of your spouse. Rents tend to rise with inflation in the long run, so it can be a good inflation hedge. To the greatest extent possible you should keep your financial affairs separate from hers, to avoid US tax liability (this much I do know).
** Oz is a bit like Canada, in that it's been so long since there's been a property crash, that people have more or less assumed it will never happen? Well. Neil Monerry's Safe as Houses: 8 Centuries of Housing Prices has a chapter re Australian housing price data from 19th C. Australia had an incredible boom to about 1910, and then a slump until the 1950s, and another bad time in late 70s, I think? The last Canadian housing price crash was early 1990s and was c. -40% and (unlike the British one) house prices in Toronto and Vancouver did *not* rally back quickly. I think the Australian one was the early 80s. Let's just say that due to immigration and natural resource pricing, it is unlikely to be one in Australia - unlikely is not zero chance, however.
As always when buying real estate, consider factors like: future sea level rise; wildfires; flooding due to excessive rain; drought (to the extent you can do anything about that). Remembering that even if these are not factors now, in 25 years when you come to sell, they are almost certain to be so.
Statistics: Posted by Valuethinker — Sun Jun 23, 2024 7:20 am — Replies 2 — Views 277