UK Pension Transfers
There are many UK immigrants coming to New Zealand who have pension plans left in the UK.
You may be able to transfer your UK pension funds to New Zealand.
Richard Harden of Richard Harden Investment services explains:
The differences between UK & NZ Rules
Anyone looking into their pension options and a possible transfer needs to be aware of the significant differences in rules between UK Pensions & New Zealand Superannuation Schemes.
There have been a number of changes with the rules over the last 10 years and tinkering is likely to continue whether it is Government legislation, HMRC in the UK or the NZ Inland Revenue Department changing tax rules.
The QROPS regime was first introduced in 2006. The rules were not very robust and “pension busting” occurred on a global scale. Unsurprisingly HMRC have now tightened up the rules. New rules were introduced in April 2012.
Recognised Overseas Pension Schemes "ROPS" now have stricter restrictions on withdrawals and most schemes need to provide an income for life.
Richard Harden says: "It is very important that any UK Pension transfer goes into a ROPS scheme otherwise there can be significant tax implications."
HMRC have a list of ROPS schemes which is updated on a regular basis. There are currently 30 New Zealand ROPS schemes with no KiwiSaver schemes anymore.
Tax is a complicated area and in recent years there has been a number of changes regarding the taxation of UK pension transfers and the Foreign Investment Fund (FIF) tax implications.
While we are not tax advisors there are some important issues to be aware of:
UK pension transfers can give rise to a New Zealand tax liability depending how many years you have been an NZ tax resident and therefore individual tax advice should be sourced to clarify your position. Someone who has lived in NZ for the last 10 years is going to have a very different tax position to someone who entered 2 years ago.
There is a 4 year exemption for new residents and returning Kiwis can take advantage of this as well whereby UK pensions can be transferred into an NZ ROPS without an NZ tax liability.
Pros and cons of transferring and key issues
QROPS transfers are not for everyone and advice should be sought as to whether it is appropriate bearing in mind your personal circumstances.
In many instances we are still recommending transferring to an NZ ROPS and some of the pros include:
In the right circumstances, ROPS transfers are still very tax efficient as the transfer could be tax free and withdrawals from the scheme are generally tax free. New Transitional Residents and returning Kiwis can transfer within the first four years tax-free. As a New Zealand tax resident, lump sum payments and regular pension payments will create tax liabilities if you are outside the four year rule.
A New Zealand ROPS scheme can offer greater flexibility and depending upon how many years you have been a New Zealand tax resident you could access 30% tax free. An income for life can then be paid to you also tax-free as the NZ Superannuation Schemes are tax paid.
Generally speaking NZ ROPS schemes offer superior estate planning options and especially compared to annuity option and final salary schemes. Upon death in New Zealand any residual monies can be left to your estate or nominated beneficiary.
Controlling investment decisions: The NZ ROPS we use offer a wide choice of investments and currency options. Rather than having to deal with UK providers it can be far simpler dealing with NZ providers.
Cons:There are costs involved with ROPS transfers. Beware of high fees as some advisers are charging a substantial % of the transfer value. We believe the initial transfer work should be charged on an hourly rate basis.
Remember, UK pension schemes are still very tax efficient in the accumulation phase compared to NZ ROPS schemes.
Under the new rules, realistically new migrants have 4 years to make a decision. After this tax liabilities start accruing.
You need to be fully committed to staying in NZ if you are looking at transferring your pension. Moving back to the UK could cause you some tax issues.
UK final salary schemes pretty much offer guaranteed benefits. NZ ROPS schemes cannot guarantee any benefits and are more like UK money purchase schemes.
ROPS cannot provide an annuity. It has also become much more complicated transferring defined benefit schemes as UK transfer advice is required. There are also a number of schemes and in particular the state sector schemes such as the Teachers and NHS which can no longer be transferred.
I have also seen a worrying trend with many UK final salary schemes being underfunded which could impact on future benefits. A number of schemes are offering reduced transfer values due to underfunding. This makes it doubly important to find an adviser who can assess your options.
We would advise against using an offshore ROPS scheme. While this may be okay from a UK tax perspective as a NZ tax resident, this could achieve very little and still give you New Zealand tax issues.
UK Pension Scheme Changes
We have seen considerable changes in the UK since April 2015 under the new Pensions Freedom rules. A couple of key changes regarding personal pensions are:
Pension holders now have much greater freedom from aged 55 around the way they wish to take benefits. They are no longer forced into purchasing an annuity at any stage.
Holders now have the option of taking the whole pension pot as a lump sum. This is an interesting concept and we are hearing of varying levels of success from clients when choosing this option.
This is still a very new option but in some cases people and in particular clients over 55 may not need a ROPS to free up their funds. Please contact us for further information.
UK advice is now required when transferring a final salary scheme. While I believe this is a bizarre rule as UK advisors cannot give advice to Non Residents it does now pose problems regarding these schemes. We will need to watch this space for the time being but I do have UK contacts to assist if required.
What is interesting though, will be how these recent changes affect UK pension transfers and we are likely to see a slowdown in the number of UK pension transfers especially from final salary schemes.
As you have seen from the information above, UK pension transfers are a complex area so it is important that you get professional advice regarding the suitability of a transfer.
Make sure your adviser has the capability and skills to properly analyse the pros and cons of your transfer.
Richard Harden was a UK adviser before immigrating to NZ so he has experience in this field and can assess your position and advise you appropriately.
DISCLAIMER: Richard Harden Investment Services are not tax experts and the information above has been simplified and is of a general nature. Independent tax advice should be obtained before relying on any aspect of the content of this summary.
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