chc4me

UK Pensions – Guide

This post is for information to assist new migrants with an understanding of the rules surrounding transfers of UK Pension savings to New Zealand. Some general information on other common financial issues is also included.

History
New regulations were introduced by the UK Government in April 2006 which allowed Pensions to be transferred overseas. This is known as the QROPS rules which stands for Qualifying Overseas Pension Schemes. Transfers to such schemes is permitted by the UK authorities without any penalty.
Since 2006, there have been 3 major changes to the regulations so it is important to understand that different rules apply to pension transfers made in the past compared to pension transfers going forward. As an example, before April 2012 it was possible to transfer a pension and withdraw the full amount if you met certain criteria. After April 2012, rules have been implemented to restrict the amount withdrawn, but even these are not as restrictive as the UK and following the UK Budget in 2014 we may see full withdrawals re-introduced.

Advantages of making a transfer.
NZ Schemes tend to be more flexible than their UK counterparts. This includes the ability to hold and invest in GBP, switch to NZD when (if) the currency improves, withdrawals from the age of 55, greater say in your investments, no inheritance tax, no loss of money on death i.e pass it on to family, consolidation of pensions, no annuities, flexible income and lump sum payments. A transfer of Pension savings to NZ may be taxable. Paying a one time tax now may be better than paying tax on the income for the rest of life in the future.

Transferring pension savings is not always the right action, sometimes the retirement benefits are very valuable and are well worth continuing with those benefits. On the other hand, there are advantages of making a transfer to a NZ scheme. I always suggest finding out the advantages and disadvantages or any action (or inaction) so that you can make an informed decision.

Tax on pension transfers
For pension transfers from 1 April 2014, there are two methods to calculate tax on a pension transfer.

option: Bring to NZ
If a new migrant completes a transfer of pension savings to NZ within the first 4 years of arriving, then no tax is payable. This is because of a general exemption allowable by the NZ IRD. Some returning Kiwis will also qualify.
If a transfer is made after the 4 year anniversary of your arrival in NZ, then the tax is calculated on a portion of the amount transferred, based on the number of years in NZ. The yearly increments are slightly less than 5% each year. For example, if you arrived in NZ 6 years ago, then the first 4 years are free, that means the first 9.45% of the transfer will be taxed. (Please see attached Schedule 33 for the percentages that apply to each year).

The second method, known as the Formula method, can be used for Money Purchase schemes providing certain information can be obtained. This includes the amount contributed to the scheme. Tax advice for this method is essential.

Allow 6 months for a pension transfer (it usually takes 2 to 3 months, but 6 months allows for any delays).

Option: Leave it in the UK
If you decide not to transfer the pension, then you can leave it in the UK. At retirement you may then start to receive an annual income and perhaps a lump sum. These amounts are taxable in New Zealand at your normal tax rate. Yes the lump sum is taxable. No it is not “Tax Free” even though the UK said it was. Yes you really do have to declare it in NZ. Yes the NZ IRD will find out if you put it in a UK bank account even if you don’t tell them ….

General tax information
If you hold savings in the UK, or receiving income payments, you will need to declare the income and interest in NZ. Someone might suggest that the UK has a tax free allowance on the first £10,000 (approx) of income, however once you become a tax resident of New Zealand, then NZ has full rights to worldwide income. The tax free allowance is no longer relevant.

Once you become a NZ tax resident, there is a form to complete to notify the bank/the pension company/ other income sources that you are not UK resident and therefore not to deduct tax at source. More at this link.

State Pensions
State Pensions can not be transferred. However they can be ‘swapped’ for a NZ Government Superannuation payment. As NZ has a reciprocal agreement with the UK, NZ treats UK ex-pats as part of the family. NZ Superannuation can be claimed from age 65 providing you are a NZ Citizen or Permanent Resident.
The NZ Govt will collect the amount owed to you from your UK state pension to offset its own cost and pay you the full NZ amount which is around $300 p/w. This usually increases with inflation each year.
If you would prefer to receive your UK state pension, then you can. However the amount will be frozen from the date of the first payment and will not increase with inflation.

Rental Properties in the UK and mortgages in the UK
Tax on rental properties and mortgages in the UK is complex and it is strongly recommended you seek advice immediately to avoid unexpected surprises. If you are renting out the family home and waiting for the property market to improve, this applies to you!

chc4me

Schedule 33 attached, as referred to in the post above.

TommyLuck

At risk of picking your brains for nothing, I realise, so tell me to clear off (or invoice me ), but;

Being 30 years old, I have a private pension in the UK but it's pretty meagre in the grand scheme of things. About 10k-12k GBP's was paid into it by me and my previous employer. And now it''s just sitting there.

I don't know how long I'm going to be in NZ and at this stage may well live and work in at least one other country (aside from the UK and NZ) before my days of working and building my nest egg for retirement are over.

Therefore, in your opinion, is it worth me taking the time to actually transfer my pension to NZ?

Also, I am part of a Kiwi Saver scheme which my employer here also contributes to.

A one word answer would be lovely. My inclination would be that it wouldn't be worth it?

chc4me

Impossible .... i.e it is nearly impossible to give you a one word answer, not to mention completely irresponsible. There are many factors to consider and there are advantages and disadvantages for transferring it just like there are advantages and disadvantages for keeping it in the UK. I would suggest that you obtain all the information and then make an informed decision so that you can be confident that you have made the right decision. Some of the factors might be which country do you think you will move to? What is the tax treatment in that counrty? If you transfer it to NZ what are the advantages/disadvantages? What happens if the rules change in the UK? Or in NZ? Usually one question leads to another ....

TommyLuck

Noted.

Will do further research and will consider my options in the event I leave NZ.

hjmilligan

HI
So if you brought your pensions over before 1 April 2014 will they still want the tax?

chc4me

Hi HJ. If you brought your pension over before 1 April, you may still have to pay tax on it. There is a full thread on the subject with loads of information and the rules that applied for transfers before 1 April. As new rules are now in place, this thread was started to answer questions for new transfers.
Many thanks for your question.

gks1508

Hi, coming over on 7 May and am bringing my private pension lump sum with me plus I shall be having the monthly salary transferred over. Can I do the tax thing when I get to NZ with the bank? Also, my salary is below the UK taxable amount, bu I guess that will be accumulated to any other income I receive whilst in NZ and taxed accordingly. Thanks for any advice offered!!

Beezer

Just arrived in NZ late Feb and waiting for family to come over in June/July, I have a residents visa and just scraped in under the age barrier so only 10 years to retirement. I have a couple of questions regarding pensions.

I have just received UK pension forecast of around £110 per week basic and additional State pension of £68 are these lumped together or treated separately for NZ pension as it will exceed the $300 dollar per week pension at current exchange rates?

I have been saving into company pension scheme (money purchase - defined contribution) in UK for a number of years and I noticed that the rules have changed since I left UK. Is it possible to transfer the pension pot to NZ and take out the full sum to purchase a house and avoid taking a large mortgage? If so what are the tax implications for transfer and drawdown?

I realise I'll need some professional advice and will need to pay for it, but good to get some initial advice to get me thinking.

Thanks

icklewelsh1

Rental Properties in the UK and mortgages in the UK
Tax on rental properties and mortgages in the UK is complex and it is strongly recommended you seek advice immediately to avoid unexpected surprises. If you are renting out the family home and waiting for the property market to improve, this applies to you![/QUOTE]


Where would I be able to get further information about the above please? I have an apartment that I would like to rent out until the market improves and this sounds scary.

lavalamp

Hi Che4me
I am a female aged 65 this year. I am already receiving 2 personal pensions as well as my state pension. We are moving to NZ in about four weeks time on a resident visa. My personal pensions are an annuity, can I transfer these to a NZ scheme. Not very sure about this but I thought once you had bought an annuity you could not change it. Would appreciate your advice. Thanks

chc4me

Thanks for the question. This thread is predominately about the rules which applies to the transfer of Pension Savings from a UK Pension company to a Qualifying Overseas Pension Scheme (QROPS). A transfer can occur before the start of the annuity or income phase.

For your question, as you have started to drawdown or receiving your regular income, then you are subject to income rules once you become NZ Tax resident. The good news is that as a new resident, you may qualify for the first 4 years tax free on all overseas income. It would be beneficial to you to visit an accountant for an hour and confirm your tax position and any future liabilities.
Best wishes and welcome to NZ!

chc4me

You are correct, once you start to receive the annuity, the Pension savings can not be transferred to a NZ scheme as a lump sum. In terms of the payments you receive from the annuity, you can do as you please with the money, but you will need to declare all income for tax purposes. Note you may qualify for the 1st 4 years tax free. An accountant will be able to assist with this.

chc4me

I would expect you will need one to two hours of an Accountants time to discuss your tax obligations in relation to the rental property. Try to find an accountant who has some experience with UK rental properties.
Many thanks.

chc4me

Yes, I believe the two amounts are combined when considering the option to swap to a NZ State Pension (NZ Super). Once the UK state pension is in payment, the amount is then 'frozen' and will not increase with inflation. so there might come a time when you are better financially to swap to NZ Super.

In terms of the Company Pension, yes that can be transferred. Is it possible to take out the full sum? Yes, if you don't mind paying the 55% penalty. There are other options but further investigation is needed.
Regards