UK Pensions – Guide Rules from 1 April 2014
 

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 After April 2012, rules have been implemented to restrict the amount withdrawn, but even these are not as restrictive as the UK and following the UK Budget in 2014 we may see full withdrawals re-introduced.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!

Re: UK Pensions – Guide Rules from 1 April 2014
 

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

Re: UK Pensions – Guide Rules from 1 April 2014
 

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?

Re: UK Pensions – Guide Rules from 1 April 2014
 

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 ....

Re: UK Pensions – Guide Rules from 1 April 2014
 

Noted.

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

Re: UK Pensions – Guide Rules from 1 April 2014
 

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

Re: UK Pensions – Guide Rules from 1 April 2014
 

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.

Re: UK Pensions – Guide Rules from 1 April 2014
 

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!!

Re: UK Pensions – Guide Rules from 1 April 2014
 

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

Re: UK Pensions – Guide Rules from 1 April 2014
 

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. :unsure:

Re: UK Pensions – Guide Rules from 1 April 2014
 

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

Re: UK Pensions – Guide Rules from 1 April 2014
 

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!

Re: UK Pensions – Guide Rules from 1 April 2014
 

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.

Re: UK Pensions – Guide Rules from 1 April 2014
 

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.

Re: UK Pensions – Guide Rules from 1 April 2014
 

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

Re: UK Pensions – Guide Rules from 1 April 2014
 

Hi CHC4me and plent2d,

I wanted to send you both a pm re transfer of NHS pension, but cannot do so as I am new. Are you able to pm me or send me details of how to contact you ?

Re: UK Pensions – Guide Rules from 1 April 2014
 

Hi
How do I transfer 10 years of uk pension over to NZ once I arrive? Is it easy to do myself or do I need to pay a transfer agent? Also is there any way of drawing the lump sum early once it is transferred?
Thanks :)

Re: UK Pensions – Guide Rules from 1 April 2014
 

It's the weekend here so it may be Monday before someone happens along.

You can see his Linkedin profile HERE

His email is dai.eveleigh@ firstcapital.co.nz

Please note that as a professional and qualified pension transfer specialist he can only give general advice on here .

Re: UK Pensions – Guide Rules from 1 April 2014
 

That depends on the the rules set by your PP plan beack in the UK. It also depends on the qrops you place the transferred pension into.

Yes I believe some do this themselves via their bank perhaps, however it is such an important decision that it is best to use a pension transfer specialist IMHO.

It is not only what you are transferring but also which qrops bests suits you.

Re: UK Pensions – Guide Rules from 1 April 2014
 

Thanks :)

Re: UK Pensions – Guide Rules from 1 April 2014
 

Hi chc4me,

After been in NZ for over 6 years, I have decided to transfer my NHS pension to here, but I can't decide whether I should DIY to reduce the cost or use a financial service. I have read on here that somebody has done it by themselves from NHS to AMP which wasn't a bad experience.

I am currently have KiwiSaver with AMP, so just for initial transfer, I could transfer it to AMP then move it to somewhere else? I am aware of the fact that HMRC follows any transfers up to 10 years. However since I have stopped being a UK tax resident since Nov 2008, so I shouldn't be penalised or should I?

I am also aware of the Exchange rate inflexibility on KiwiSavers, but people are arguing that waiting for the rate to recover in a way is a losing interests and investment returns? What's your opinions on that?

Do you think DIY is a good ideal in general?

Regards

Re: UK Pensions – Guide Rules from 1 April 2014
 

Hi, I have lived in NZ for 10yrs and have a private pension scheme in the UK that matures when I am 55, it is only 7k GBP (I haven't paid any contributions for years) and I will be 55 this September.

Can I have this as a lump sum? All these changes get me a little confused on what I can do and cant do!

Any advice in plain language would be much appreciated as all the jargon in the letters sent by my provider is gobbledygook to me!

Thanks in advance.

Skin

Re: UK Pensions – Guide Rules from 1 April 2014
 

Hi to all. I've just got back from a refreshing holiday after a super busy year and ready to answer your pension questions. Many thanks to Bev for her comments in my absence.

Re: UK Pensions – Guide Rules from 1 April 2014
 

There are many considerations before making a transfer.
DIY or use an adviser?
Hold it in GBP or transfer straight to NZD?
Put it in Kiwisaver or a QROPS?
Access fom age 55 or 65?
Future plans?

Do I think DIY is a good ideal in general? No.
Why? Because a transfer is not just about completing the transfer (and there are a number of issues that can trip up the unwary along the way), it is also about the advice and flexibility that can be obtained with a transfer to a NZ QROPS. As one example, if you transfer in to a Kiwisaver scheme, you will not be able to make a withdrawal until age 65 but it could be extended if the retirement age increases. A transfer to a QROPS will allow withdrawals from the age of 55. That's quite a difference.

Transfer of an NHS Pension.
As this will be a final salary scheme, and if you have made the decison to make the transfer, start immediately! Why? Because the UK Govt have announced changes which could stop the future transfer of such schemes. A transfer of an NHS pension often takes 6 months.

10 year reporting.
You are correct that the receiving scheme must report to HMRC for a period of 10 years. This time frame starts from the day the money is received by the new scheme. Providing you stick to the rules, there will be no penalties.

Exchange rates.
This is a personal decision which might depend on when you plan to use the funds. If it is in the next couple of years, you might decide to make the currency switch immediately. If you plan to retire in 10 years time (or more) then holding and investing in GBP investments, might be more attractive.

Fees.
Talk to your adviser (or ME!!) and discuss your concerns. Depending on what level of service you want, you may be able to negotiate a lower fee.

I hope that helps
Best wishes.

Re: UK Pensions – Guide Rules from 1 April 2014
 

Great question! The first step is to take a look at the actual information from your UK scheme as this may provide some additional information. Unfortunately the information is not always easy to understand.

Here is a bit of reading for you ... http://www.hmrc.gov.uk/pensionschemes/small-pen.htm

With the info in this link, from the age of 60 you will be able to withdraw the full amount. However keep in mind that you will have to pay tax on any withdrawals to the NZ IRD. Also keep in mind that rules change and by the time you reach 60, changes may have been made restricting withdrawals (I know, this makes it very hard to plan future actions!!)
Regards
Chc4me

Re: UK Pensions – Guide Rules from 1 April 2014
 

Thanks chc4me

All these changes seem geared to make it harder and harder to get your own money!

I will read up and hopefully understand some of the lingo.

Cheers Mate
Les

Re: UK Pensions – Guide Rules from 1 April 2014
 

Thanks for your reply chc4me,

How do I contact you directly? Also I'm Auckland based, would that be problem as you are in CHCH?

Cheers

Re: UK Pensions – Guide Rules from 1 April 2014
 

Message sent to Kanan1 :)

Re: UK Pensions – Guide Rules from 1 April 2014
 

Hi Dai, very informative thread. Thanks.
I had a question was regarding my pension - I have two small pensions that have a combined value of less than £18 K. My understanding is that I can withdraw these pensions as a tax free lump sum (in the UK) as they are of trivial amount? Is this correct? Seems too easy...

Re: UK Pensions – Guide Rules from 1 April 2014
 

Hi chc4me

I was considering moving my pensions to Kiwisaver! in your opinion would this be advisable?

Thanks for your help.

Skin

Re: UK Pensions – Guide Rules from 1 April 2014
 

Hi RhinoG,
Please read this link http://www.hmrc.gov.uk/pensionschemes/small-pen.htm regarding small pensions. Note that the minimum age is 60 and if you are a New Zealand tax payer, you will have to declare any withdrawal or payment to the NZ IRD.

Re: UK Pensions – Guide Rules from 1 April 2014
 

Hi,
It's difficult to provide you with an opinion on what to do without knowing any information, such as your future plans, when do you what to access the money, your investment preferences (eg GBP / NZD), and so on.
I've written a number of posts on the advantages and disadvantages of Kiwisaver and will recap them here.

A Pension transfer must be made to a Qualifying Overseas Pension Scheme (QROPS). Some schemes are "NZ Superannuation" and some schemes are "Kiwisaver". Not all Kiwisaver providers will accept a UK Pension transfer so you would need to check with your provider.

A transfer into a NZ Superannuation scheme will allow withdrawals from age 55. Kiwisaver has no withdrawals before 65 (and if the retirement age increases, then this will be extended). That's a pretty big advantage/disadvantage.
NZ Superannuation schemes might allow the choice to hold GBP and invest in GBP, thus waiting for a better currency - although currency movements can be a risk that would need to be considered. Kiwisaver has no such choice, the transfer would be converted to NZD on the day of receiving the transfer.
NZ Superannuation schemes may allow you to have input into the investments, including direct shares (eg Genesis Public offer recently) or other investments. Kiwisaver has limited investment choices.

What happens if you were to return to the UK? Kiwisaver could be problematic and could create penalties if not fully aware of the rules issued by the UK Govt. NZ Superannuation Scheme will allow you to plan for changes and give you options.

Generally speaking, a NZ Superannuation Scheme will provide more flexibility and choice.

Re: UK Pensions – Guide Rules from 1 April 2014
 

Thanks again, I do not intend returning to the U.K., I will check up on options you have mentioned.

Cheers

Re: UK Pensions – Guide Rules from 1 April 2014
 

Hi i have been advised in regard to transferring an NHS pension, that "To make this match your home ownership goals you could transfer to a NZ pension scheme who will let you with draw 25% at age 60 and then convert the funds to Kiwi saver as opposed to a set income." Thus allowing me to use the money to pay off a mortgage. However, I cannot find any other information which states this is possible?

Re: UK Pensions – Guide Rules from 1 April 2014
 

NZ QROPS rules allow you to withdraw a certain percentage at a certain age. Each scheme may be slightly different in terms of percentages and age. The scheme that I regularly recommend is permitted to withdraw 30% at age 55, plus any growth that the investments have made since the transfer date, as well as an annual income. (Note if you have been resident in the UK in the last 5 tax years then the percentage is 25% maximum).

What you do with that money is up to you.

Re: UK Pensions – Guide Rules from 1 April 2014
 

Thanks for that but he said "convert the funds to Kiwi saver as opposed to a set income" meaning all the rest?

When i queried this and said what i understood was what you have just stated, he replied "It is not stated as it is simply an out working of the different rules of the various schemes".

I'm confused?

Re: UK Pensions – Guide Rules from 1 April 2014
 

Just checking ..... you are using an adviser, but want an adviser with more knowledge to answer your questions? :wink_smile: Anytime you would like a second option, let me know.

The regulations allow a transfer of a UK Pension from a NZ QROPS scheme to a Kiwisaver (which must also be a QROPS), on or before the age of 65. This then results in the funds maturing at Kiwisaver Retirement age (currently 65 but could increase). Not all Kiwisaver schemes are QROPS, you would need to check with your Kiwisaver provider.

Re: UK Pensions – Guide Rules from 1 April 2014
 

I thought that. :lol:

Re: UK Pensions – Guide Rules from 1 April 2014
 

Yes i have but as he's also from my Kiwisaver provider (though states he's independent) a certain amount of skepticism , i find, is advisable.

Re: UK Pensions – Guide Rules from 1 April 2014
 

Absolutely agree, I admire your skepticism and the research you have undertaken, it's always healthy to challenge your adviser and to make sure the information is correct. I hope I have answered your question but feel free to ask more.