It pays to move money in advance
The Independent, 19 October 2006
By Lynda Searby
Specialist banking services mean that you can open an Australian bank account before you leave the UK. Lynda Searby helps you get your finances in order It may not be the most glamorous aspect of moving to Australia, but it pays to get your finances in order before you move rather than after you arrive. In the past, UK migrants had no choice but to wait until they were in Australia to open a bank account, apply for a credit card and secure a home loan. Not anymore. The major Australian banks now offer specialist banking services which allow you to
open an Australian account on British soil. "It's a good idea to set up a bank account before you go," advises Richard Hoffman, manager of migrant banking for the Commonwealth Bank of Australia. "On arrival, most migrants don't have permanent address, so from an ID point of view, it's easier to open an account before you go. It also means cards and chequebooks are waiting for you when you arrive." Australia has four major banks: Westpac Banking Corporation, National Australia Bank, Australian and New Zealand Banking Corporate Group and Commonwealth Bank of Australia. These have branches in every capital city and most towns. In Australia, banking is deregulated, which has made it an intensely competitive market. As a result, banks earn much less interest on loans and other borrowings than in the UK, and to make up for this, lay on the charges thickly. You're looking at an average of A$5 [£2] per month for an account keeping fee. You will also pay on average about 50 cents for every transaction," advises Hoffman.
Historically, new migrants have had trouble obtaining home loans and credit cards as they are unable to show ongoing income and a track record in Australia. This is changing, with some
Australian banks, such as Westpac, allowing migrants to apply for a credit card and mortgage
before they leave the UK If you choose to wait until you're in Australia before arranging a credit card or mortgage, Hoffman recommends taking some financial history with you. "Take three or four months of credit card bills and bank statements as well as evidence of any housing loans you've had in the UK" Providing you've got a permanent resident visa, you can
buy property as soon as you arrive The lender will expect proof of income and a sizeable deposit - 80 per cent mortgages are the norm, and 100 per cent mortgages are unusual Interest rates are slightly higher in Australia than in the UK - the variable rate currently stands at 7.8 per cent. Many migrants will have sold a property in the UK and will want to transfer the proceeds into an Australian bank account to put down as a deposit. While a bank will take care of this for you, they will charge handsomely for the privilege.
What people don't always realise is that they will get a much better deal by using a specialist currency exchange company to transfer lump sums. "A lot of people don't realize that there is an alternative to using a bank or they are reluctant to entrust a company they haven't heard of with their money," says Alex Lawson, a private client dealer with Moneycorp. A currency exchange specialist will enable you to take advantage of fluctuations in exchange rates. Say, for example, you are hi the process of selling your house, with the intention of using the proceeds to buy property in Australia The currency exchange rate might be favourable now, but there's no guarantee that when the sale goes through, the rate won't have fallen. Forward contracts, offered by companies like HiFX and Moneycorp, allow you to fix a rate of exchange now for a date in the future, by putting down a small deposit It may sound like a lot of hassle, but when you do the maths, it's definitely worthwhile. The last 12 months have seen the
Australian dollar hitting highs of A$2.53 and lows of A$2.29 against the pound. On £100,000
that would make a difference of A$24,000, which would buy a decent car in Australia. Another area where you can lose money unless you make informed decisions is pensions. If you’ve worked in the UK for two years or more, you are likely to have pension funds that can be transferred to Australia. But the decision to transfer shouldn't be an automatic one. "You need to weigh up the benefits you will forgo versus the tax advantages you will gain by transferring your pension to Australia," advises Clive Herrald, director of Global Pension Transfers.
"Benefits could include a spouse pension hi the event of death, life insurance or a guaranteed pension for life. You won't get the same benefits hi Australia, as pensions there are the equivalent of British money purchase plans." On the other hand, in the UK when you retire, you pay tax on your pension, whereas in Australia, income is tax free for anyone aged 60-plus. Generally, if you are planning on living in Oz for the rest of your life, it makes sense to transfer. But according to Westpac's Anthony Davison, its important to ensure you transfer to a Qualifying Recognised Overseas Pension Scheme (QROPS). "If you don't, you could get clobbered with a 55 per cent tax bill," he warns. The only problem is that there aren't that many QROPS funds in Australia. One of the first and biggest is BT Super Wrap, a superannuation fund offered by BT Financial Group, part of Westpac Banking Corporation.
Besides your UK pension, once you start working in Australia, your employer will be required to pay nine per cent of your salary into a superannuation fund, which you can add to with after-tax contributions. When you retire, the funds will be converted to an income.
It's no good relying on a state pension as a source of income. You can’t transfer your UK state pension and Australia's state pension is a non-contributory, means tested scheme, meaning that if you have reasonable assets, you won’t qualify giving you a sun tanned but skint, retirement.
'It's not unusual to pay off your mortgage within 10 years' Stuart Madeod, a personal injury lawyer and his wife Lynsey emigrated to Australia's Gold Coast in 2003. Macleod opened an account with the Commonwealth Bank of Australia within days of arriving in Australia, for which he pays a A$5 monthly charge. "There's no such thing as free banking over here," he says. "If you want to write a cheque you pay for it. If you want to use another bank's cash machine, there will be a charge. There's even a limit to how often you can use your own bank's cash machine. It's just a way of life, here,"
Stuart used HiFX, a specialist in currency exchange, to move the money from the proceeds of his UK house sale to Australia. "There is no commission or charge - their charge is incorporated into the exchange rate they give you, so the more you move, the better the rate."
Once they had been granted permanent residency, he and his wife used that money to buy a
house in Australia. The mortgage is with his bank. "I pay my mortgage weekly, which is very common here," he says. "If I want I can put in a couple of hundred extra dollars into the mortgage each week. It's not unusual for people to pay off their mortgages within 10 years."
He has left his personal pension in the United Kingdom for now. "It's compulsory for your employer to pay nine per cent of your salary into a superannuation fund. So in the future scheme, I’m hoping to rely on the pension I get from that. The British one, if anything, will be a bonus.”