British Expats - UK Pension Transfer

This update takes into account changes up until April 2018.

Background: The ability to transfer a UK pension to a Qualifying Recognised Overseas Pension Scheme (QROPS) began in April 2006. Since that time there has been 7 major changes to the rules either in NZ or the UK (or sometimes both). In other words, what may have been true in previous years, may no longer be relevant now. Before undertaking any action with a UK pension, it is vital to seek advice from a specialist adviser with experience and expertise in this complex sector.

1. Defined Contribution schemes (also known as money purchase schemes) and private final salary schemes CAN be transferred.

2. UK Government funded final salary schemes can not be transferred overseas (NHS, Teachers, Armed Forces etc). Those schemes will have to stay put until retirement. We originally thought there might be some clause for overseas residents but this has not been forthcoming.

3. If transferring a UK Pension savings scheme to NZ, it must be transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS for short).

4. Some KiwiSaver schemes previously qualified, however from 6th of April 2015, KiwiSaver schemes were no longer permitted to receive transfers. This is due to the ability to make withdrawals before age 55 in certain circumstances, such as Financial Hardship and Permanent immigration from NZ. What if you have previously made a transfer to KiwiSaver? No problem, it just continues as before - withdrawals available from age 65.

5. There are approximately 12 qualifying QROPS scheme in New Zealand. Each one has advantages, disadvantages, different investment options, different fees and some may permit investing in difference currencies (such as GBP) while waiting for exchange rate movements

6. Transfers from a pension scheme to a NZ scheme is a taxable event. If a transfer is made within the first 4 years of arriving in NZ, then no tax is payable on the transfer. After the 4 year anniversary, tax is payable to the NZ IRD based on a sliding scale and the number of years since the end of the 4 year anniversary. More information is available with the IR1024 fact sheet on this issue. If you are a returning resident, or have previously lived in NZ, then you may qualify for a general 4 year exemption. It is important to seek tax advice on this issue to avoid nasty shocks.

7. Since April 2015, the UK permits 100% withdrawals from a UK Pension scheme directly to the named holder. However this would be taxable event and tax is required to be paid on the FULL amount in New Zealand. This clause may be helpful for “Transitional Residents” over age 55 and recently arrived in NZ.

8. From April 2017, full flexibility is available for withdrawals from NZ QROPS schemes. Some schemes have instigated exit penalties if making a withdrawal within a set timeframe, you will need to check with that scheme before making a decision to transfer. Not all schemes have exit penalties. To complicate matters further, the UK Govt have a 5 year and a 10 year “member payment provision” or may clawback UK tax relief. Advice is essential.

9. Overseas Transfer Charge (OTC) – For new transfers from 9th March 2017, investors need to be aware of the OTC. This has been introduced by the UK authorities and is payable in certain situations. There are some exemptions including transferring your UK pension to a QROPS that is in the same country that you are living in. For example, if you live in NZ and transfer to a NZ scheme, then the exemption applies. However, if your circumstances change within 5 years of making the transfer, the OTC of 25% could become payable to HMRC. Transfer made before 09/03/2017 are excluded from OTC.

10. In the first point, it mentions “Final Salary” schemes, also known as “Defined Contribution Scheme” can be transferred. This type of scheme is considered highly valuable and should not be transferred without expert advice. The UK Govt insist by law that a Pension Transfer Report is required before a transfer can take place. Such reports are prepared by UK regulated advisers at a cost (only UK regulated advisers can prepare such reports). While this adds to the complexity, costs, and time that it takes to complete a transfer, it does mean you receive appropriate information to enable an informed decision.

This area of financial advice can be quite technical, one question can lead to another and what is right for one person may not be right for another. Please seek advice from a suitable Adviser before making any financial decisions.

Best wishes.
chc4me