nick99

Am trying to answer this simple question for my partner. I realize that Kiwisaver contributions direct from salary are paid from your gross salary before it is taxed (a benefit).

If she decides to invest in another (non-Kiwisaver) pension scheme can these contributions be made in the same way? Clearly if she opens a saving scheme or suchlike and pays into that from her net salary then the contribution will need to be larger (to have the same effect) to make up for the tax deduction.

jmh

Actually, I'm not sure that's true. I came across this:

More tax/kiwisaver info here: http://www.kiwisaver.govt.nz/already/contributions/tax/

nick99

Quite right - thanks for the correction.

chocolate cake

Indeed any pension contributions, kiwi saver etc. are not deducted from you taxable income, so not tax free.

chc4me

The New Zealand tax system for pensions and savings is almost the opposite to the UK. As you know, in the UK retirement savings are 'tax free', 'tax free' TAXED. That is to say, no tax on contributions, no tax during the savings period, but taxed on withdrawal. I'm talking in general terms as I understand Gordon Brown introduced stealth taxes on pension sometime ago, but this gives you the general idea.

In NZ, we pay tax on contributions, tax during the savings period, but all withdrawals are 'tax free'.

trafford

I have loads of questions and hoping someone knows some of the answers!

Do you have to bring your UK pension over to NZ? Does the pension need to be transferred to NZ to be tax free on drawdown? Or can it remain in the UK?

My OH and I (both 46) have a SIPP each, and we are moving back in January. I understand we have 4 years from first entry where the growth in the SIPP is tax free. After that we pay tax on the growth but I am not sure how that works.

Is there a set pension age? Could we release the pension at 55?

Do you still pay tax on growth in the pension once you have reached your pension age and have started drawdown?

Sorry - so many questions, but it is so confusing!

chc4me

Hi Trafford, hope this helps answer your questions. I do have one question, you say you are moving back in January. How long have you been away?

Do I have to transfer my pension? No, its a choice. There are lots of advantages to transferring your pension, but also some disadvantages to be aware of.

Does the pension need to be transferred to NZ to be tax free on drawdown? If you leave it in the UK, and retire here in NZ, you will pay tax on all withdrawals. If you transfer your pension to NZ, then no tax will be paid on withdrawals. However, the way the NZ system works, tax will be deducted from the growth of the fund each year.

I understand we have 4 years from first entry where the growth in the SIPP is tax free. After that we pay tax on the growth but I am not sure how that works. The rules are changing in April 2014. From that date, if you leave your pension in the UK, you will pay tax at retirement on withdrawals, including any lump sum you may receive. The rule stating you have to pay tax on the growth will no longer apply. Moving back in January makes no difference.

Is there a set pension age? Could we release the pension at 55? Under New Zealand rules, you will be able to withdraw 30% of the amount transferred PLUS any growth the fund has made since the time it was transferred to NZ. You may be able to release higher amounts depending on your situation. If you leave it in the UK, you are subject to the rules of your UK scheme and retirement age.

Do you still pay tax on growth in the pension once you have reached your pension age and have started drawdown? Yes, growth is taxed within the scheme regardless of age or drawdown etc (assuming its transferred to NZ). The advantage is that all drawdown payments are paid to you without any further tax deductions. Tax paid within the scheme is not required to be declared in your own tax return.

One last point about tax on Superannuation Schemes in New Zealand. The tax on growth is capped at a maximum of 5%. If your savings growth by 12%, the fund pays tax on the first 5% of that growth only. Just a quirk of the system.

trafford

Thanks chc4me for all the help.


We have been away from NZ for 16 years.

I was a bit confused by this sorry. Does this mean that if we move our pensions to NZ after April 2014 that we will pay tax on withdrawals when we finally start drawing? Is the April date some sort of rubicon, where the new rules apply and any pensions transferred to NZ after that date will mean that withdrawals are liable for tax? Or does it only apply if you do not move the pension to NZ?

That means that any growth above 5% is untaxed? Theoretically that sounds great, but our SIPPS have grown by a staggering 9% since 2008 - so 5 years and only 9%. Though I have no basis for comparison, and we have made no contributions during the period, it still seems small. Inflation means it is actually worth less in real terms.

Still, given the experience of some poor souls here on BE - losing life savings in shady financial companies - I consider myself lucky. That is my one worry about moving our pensions to NZ - the NZ financial services sector sector seems to have had lax regulation and protection in the recent past, so has that changed?

chc4me

Trafford, you have two options.

1) Leave your pensions in the UK.
At retirement you will then be able to drawdown a lumpsum of 25% plus an annual income as per the rules in the UK. As you will be living in NZ but your Pension is overseas, you are obliged to pay tax on the lumpsum and the income as part of your NZ tax return. The tax you will pay will be based on your NZ marginal tax rate at the time of receiving the lumpsum and income. For this option, we do not need to consider any growth or other factors, the only point to note is how much you receive from each payment. In other words, it is tax free during the savings period but taxed on receipt.

2) Transfer the pensions to NZ.
Under this option, you can transfer your pension to NZ in the first 4 years without any tax or penalties (this applies to you as you qualify for the 4 year exemption, not everybody does). Once the fund is in NZ, you are then taxed under NZ rules. This means any growth within the scheme, from the date of arriving in NZ, will then be taxed on a maximum of 5% of the annual growth. You can ignore previous growth that your SIPP has made prior to the transfer.

Under this option, as the funds are now in NZ, tax is paid during the savings period, but tax free on receipt. This can be a huge advantage if you are close to retirement.

The April date is the start of new rules which clarify the tax position of UK pensions. For your situation, the April date is less relevant than for existing NZ residents who may have better options before April depending on their personal situation (when they arrived in NZ, how long they have been in NZ etc).

A note on your 9% since 2008 .... between 2008 and 2010, the global financial crisis resulted in large losses to pension funds and investments in general. Since 2010, investment markets have performed strongly to assist in a rebound in values however many investments have only recently regained 2008 values. You are not alone in your experience.

Apologies for the long post, just answering the question ....

trafford

I like the idea of tax free withdrawals! But, tbh I am not sure when I will retire. I am "only" 45, so it will be 10 years at least. I guess I need to crunch the numbers with a specialist when I get to NZ to see which option suits.

Oh well, I guess we are all in the same boat - or in the words of Gordon Gecko, we are all drinking the same kool-aid. Since we are making no more payments into the SIPP I was kinda hoping for more growth! Still got 10 years I suppose.

Please don't apologise for the long post! Your advice has been really helpful. I am the queen of verbiage, so I cannot cast judgement on others.

BEVS

As far as I now ChCh4Me is a specialist.

trafford

In that case he will be one of my first phone calls! After all, we are virtually (virtual?) friends already