October 2024
By Jean Strock, Financial Adviser
Whether you decide to transfer your UK pension benefits to New Zealand or not, it can be an expensive mistake to simply ignore them. A trusted partner to provide independent, cost- effective advice is essential.
Saturn operates one of the oldest and most flexible Superannuation Schemes in New Zealand. It is a Qualifying Recognised Overseas Pension Scheme (QROPS or sometimes ROPS). This means the scheme is fully compliant with UK pension regulations as enforced by His Majesty’s Revenue and Customs and has similar characteristics to UK domiciled Schemes.
But first the bad news. It is virtually impossible to transfer National Health Service (NHS), Police or Teachers pensions to a QROPS. In fact, in general any public sector pension such as military or the civil service cannot be transferred.
Other private Defined Benefit (DB) pensions will require specialised advice as they come with guaranteed benefits such as lifetime annuities. For pensions worth more than GBP 30,000, financial advice must be taken in the UK as well as in New Zealand before transfer can occur. Saturn can put you in touch with specialised pension advisers who also have UK advisers to call on.
Defined Contribution or DC schemes are similar to our KiwiSaver and are easier to transfer. They are now the most common type of Superannuation available in the UK. From 2012 all UK workplaces are required to enrol their staff in a pension scheme. These are built up through your own and workplace contributions and have tax advantages. The amount you have at retirement depends on the level of contribution and the performance of the selected investments. At retirement date you have the option to purchase an annuity to provide an income for life.
If you are contemplating transferring your UK pension to New Zealand you may need specialised advice to understand the benefits and risks. For example, if you move your pension benefits to a New Zealand QROPS and subsequently move to Australia (within five years from the date of the original transfer), HMRC regard this as an unauthorised transfer and you could be liable for a 25% tax on the value of your pension. We also recommend taking advice on the tax implications of the transfer.
TAX
When you migrate to New Zealand you are given a four- year transition period where you are not taxed on your worldwide income, just on your New Zealand sourced income. This is your window of opportunity to transfer your UK pension to New Zealand free of tax.
In most cases, at the end of your transition period you will be taxed in New Zealand on a portion of the lump sum transfer according to a schedule (Refer to the table below). As an example, if you have been a New Zealand resident for ten years following the end of your transition period, 44.39% of the value of your pension lump sum will be added to your income in the year it arrives and be taxed at your marginal tax rate, potentially 39%.
Unlike in New Zealand pension benefits in the UK are taxed on withdrawal. In general, a UK retiree can withdraw 25% of the value of their pension as a tax-free lump sum with any additional withdrawals taxed as income. You may be able to access a lump sum tax free in the UK but if you are outside of your transition period the lump sum will be taxed in New Zealand as already described. A regular lifetime income received by a New Zealand resident must also be included as foreign income in your tax return.
Saturn Invest New Zealand operates the Portfolio Superannuation Scheme and the team are experts in processing UK pension transfers. With each year that you ignore your UK pension your tax liability on the transferred sum grows.
For any queries and to access specialist advice please contact the Scheme Manager James Stacey. james@saturninvest.co.nz
If you have lost track of your UK pension details you can contact the UK Pension Tracing Service here: Pension Tracing Service
Notes
- A Defined Benefit (DB) pension scheme is sponsored by an employer with final benefits calculated according to your age, final salary and employment history. FB schemes generally offer an inflation adjusted, guaranteed pension for life when you retire. On your death your spouse or dependants may continue to receive a pension. In general DB schemes are no longer available to new members.
- The UK, like most OECD countries, runs an Exempt – Exempt – Taxed or EET system for the taxation of pension benefits. In other words, contributions to superannuation are from pre-tax earnings. The investment returns are not taxed during the accumulation period but you are taxed when you draw on your pension benefits. This allows the investment to grow more without the tax drag on returns.
In New Zealand we operate a TTE system. Superannuation (and KiwiSaver) contributions are paid from after tax income. The investment income is taxed during the accumulation period but you can withdraw your entire investment tax free at retirement. - The schedular method for calculating the percentage of lump sum pension transfers subject to tax in New Zealand is as follows:
Tax rules for foreign superannuation lump sum (IR1024)
The views expressed in this article are the views of the author. The information provided is of general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances