Kiwis have always loved to live and work in the UK, and there’s never been a shortage of Poms looking to make the move to Aotearoa. As a result, many people have private pensions in both countries. It’s the same situation that many Kiwis who have lived and worked in Australia face: two countries, two pension schemes. But while moving your super across the Tasman is relatively simple, transferring money from a UK pension scheme to one in New Zealand is a more involved process.
The biggest complication is that unlike Aussie super funds, you can’t transfer money from a UK pension scheme into a KiwiSaver account. Instead, you need to move the money into a Qualifying Registered Overseas Pension Scheme (QROPS).
What is a QROPS?
A QROPS is a pension plan outside of the UK that has been approved by the UK government. To qualify, a QROPS must meet certain tax requirements and limit payments of benefits to those aged 55 and older. In NZ, there is a choice of approved QROPS providers.
What is the procedure for transferring your funds to a QROPS?
To transfer your UK pension to an NZ QROPS, you need to give your UK scheme administrator a written notice about your decision to transfer. Within 30 days after receiving your notice, the administrator should provide you with the current value of your pension scheme, as well as the documentation needed to proceed with the transfer.
From there, it’s imperative that you complete the paperwork correctly and submit it on time, otherwise you’ll automatically be charged a default tax rate of 25% of your pension fund value. For more on the tax implications of transferring your UK pension to a QROPS, see below. The whole transfer process can take between two to six months.
The pros and cons of transferring your UK pension to an NZ QROPS
- More direct access to your funds with a local contact point
- Benefits of financial planning in a single currency: the NZ dollar
- Less risk exposure to fluctuations in global markets and exchange rates
- On your death, the balance of your pension will be transferred to your estate, tax free, unlike in the UK where pension funds are subject to inheritance tax
- You can start withdrawing your money when you’re 55, unlike KiwiSaver, which won’t let you touch your money until you turn 65.
When it comes to transferring your UK pension to an NZ QROPS there are many potential pitfalls, some of which include:
No KiwiSaver consolidation
Once your funds are in NZ, you are still not allowed to then transfer them into a KiwiSaver account. They must remain in the UK government approved QROPS. This means if you’ve both a QROPS and a KiwiSaver, you’ll pay two sets of fees.
One of the risks you face is losing some of a UK pension scheme’s benefits. These include pensions for your spouse or dependents, minimum pensions, and certain insurance coverage. Ask your financial adviser about this and weigh the benefits you could lose against the potential gains.
If you’ve a defined benefit pension plan in the UK (one based on a set figure, rather than investment returns) the Financial Markets Authority advises that: “It’s rarely in your best interests to transfer your savings to New Zealand.”
Look into the effects of converting sterling into NZD. Note that you can keep your pension funds in sterling when you transfer them to a QROPS. This may work to your advantage if the exchange rate is not favourable to the NZD. You can then convert at a later date, to achieve a more favourable rate.
Your financial adviser may charge a fixed amount or a commission fee for their service. This amount can be quite substantial, so factor this into your decision-making. Make sure there’s complete transparency when it comes to all fees, and there are no hidden charges, whether by your adviser, the superannuation provider, or the UK pension provider.
While there’s a tax-free window of four years from the moment you become an NZ tax resident, if you transfer after this term expires you could end up paying tax on the whole sum transferred. Once the money is in NZ, tax is payable on the income from your investment under the Portfolio Investment Entity (PIE) tax rules.
Once your money is transferred, you’ll not be able to transfer it back to the UK. And if you make subsequent moves to another overseas QROPS within five years, you could end up paying yet more tax on the transaction.
Overall, there are far more possible complications associated with moving a UK pension to NZ, when compare to just bringing one over the ditch. This is why, as with all big financial transactions, it’s essential that you take professional advice.
It’s also wise to ensure that you are in a suitable KiwiSaver fund, both to maximise your investment and minimise your fees. This is something that Canstar can help you with. Our free comparison tool allows you to compare funds, while our KiwiSaver report highlights providers that deliver outstanding value and customer satisfaction. For more information, just click on the button below:
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