Transferring your UK pension to a New Zealand Qualifying Recognised Overseas Pensions Scheme (QROPS) is a major financial step. Before transferring, it is important you consider the advantages and disadvantages. We’re here to help make this as straightforward and clear as possible.
Incorporate your UK pension into your retirement planning.
Consolidating your pension in New Zealand makes it easier and simpler to manage your retirement finances – particularly working out how much you have and whether it is invested appropriately.
By having your pension in NZ it minimizes future exchange rate risks if the Pound weakens against the NZ Dollar and you suddenly find yourself at retirement needing to use your pension with a poor exchange rate.
- Returning New Zealand citizens;
- UK nationals who have migrated to New Zealand; and
- Non-UK nationals with UK Pension benefits who have migrated to New Zealand.
We require transferring clients to be living in New Zealand with the intention and ability to reside and retire in New Zealand permanently. You may not be able to transfer your UK Pension to New Zealand if you are already receiving income from an annuity purchased from benefits accrued from your UK Pension Scheme. You are no longer able to transfer government funded defined benefit pensions (NHS, teachers, police etc).
There are two types of UK pension schemes; defined contribution schemes and defined benefit schemes.
A defined contribution scheme is based on a mix of your contributions and investment returns over time.
A defined benefit scheme provides its members with an income for life from their retirement date calculated using a set formula. The calculation is based on a range of measures but usually linked to the member’s final salary. The main risk in such plans is the provider getting into financial difficulty and being unable to honour their commitments.
The structure of your pension will determine the advice process you must undergo in order to transfer it to a New Zealand QROPS.
If you have a defined benefit scheme with a value over GBP30,000, you must get a licenced UK financial adviser to analyse the transfer value. We can arrange this for you.
The issue with tax
Transfer your UK pension to New Zealand within 4 years of arriving and you will pay no tax on the transfer.
If you have been living in New Zealand longer than four years, you could have a tax liability on your pension transfer.
Unlike in the UK, there is no Inheritance Tax to pay in New Zealand in the event of your death.
Yes - if you are over 55 and eligible to withdraw some of your pension. Unfortunately, you cannot use the transferred funds to pay the tax if you are under 55 – which means you need to pay the tax out of income. However, you must be aware that for every year that you delay transferring, the tax liability increases.
Yes. By transferring into a New Zealand superannuation scheme, any withdrawals, as long as they are conducted in line with HMRC rules, will have no New Zealand tax deducted from them.
There are two methods under which UK pension transfers may be taxed in New Zealand:
The ‘Schedule method’: Under this method a person is taxed on the amount of their UK pension transfer based on their “attachment to New Zealand”, that is the number of years that they have been tax resident in New Zealand (not counting the 48-month exemption period) prior to them transferring their UK pension. The amount of the transfer that is taxable in New Zealand is a percentage of the amount transferred, as determined by the schedule. This is the default method for calculating the taxable amount arising from your UK pension transfer. I am happy to assist you in estimating the amount of New Zealand taxable income arising from the transfer of your UK pension under the Schedule method should you wish.
The ‘Formula method’: This method seeks to determine the actual growth in the amount transferred during the time you are tax resident in New Zealand. You can choose to use the formula method instead of the (default) schedule method, unless you have previously used the schedule method for a previous transfer from your UK pension scheme.
The New Zealand tax rules applying to the transfer of UK pensions are complex. Accordingly, if you have any concern about the tax consequences of the transfer, we recommend that you seek specialist tax advice before proceeding with the transfer. We are happy to assist in arranging such advice should you wish.
What about the exchange rate?
Many people are nervous about transferring their pension because of the GBP-NZD exchange rate. As the transfer process can take several months, it is impossible to predict which day the transfer will happen and what the exchange rate will be.
We have the option to do the transfer now, allocating the funds to a GBP account ahead of a gradual transition to NZD strategies over time.
Keep in control of your retirement funds
Once your UK pension is transferred into a NZ QROPS it is important to structure your investment according to your age and risk profile - we offer a choice of investment funds tailored to meet your retirement needs.
Further, we use a QROPS scheme with no entry or exit fees, unlike many other schemes.
We choose to use the NZ Funds Superannuation Scheme for UK pension transfers. The enables us to select a combination of investment classes designed to suit your needs:
- ROPS GBP Income Strategy provides exposure to income-orientated assets using an active investment management approach with a UK currency overlay.
- Income Strategy (Superannuation and ROPS Classes) Provide exposure to income-orientated assets using an active investment management approach.
- Inflation Strategy (Superannuation and ROPS Classes) To mitigate the impact of inflation on your investment over the medium and/or long term by investing in income-orientated assets and growth-orientated assets using an active investment management approach.
- Growth Strategy (Superannuation and ROPS Classes) To grow your investment over the long term by investing in income-orientated assets and growth-orientated assets using an active investment management approach.
It also gives us the ability to use NZ Funds LifeCycle technology which matches your asset allocation to your age to increase the probability you achieve your retirement goals.
The circumstances in which you are able to withdraw the amounts transferred to the Service from a UK pension scheme are governed by the UK Pension Rules.
You are only able to withdraw your investment in accordance with the UK Pension Rules which allow you to withdraw:
- when you reach the UK normal minimum pension age (currently age 55); or
- if you meet the ill-health or serious ill-health conditions under UK law.
What happens next?
The first step is to request information about your pension from the scheme provider. They will let us know the transfer value. We will then give you some options on whether or how to proceed. At this point we will let you know the cost of transferring your pension and give you an indication of your potential tax liability (although we do not provide tax advice).
If you decided to go ahead, you will need to complete some transfer documents as well as provide proof of identity and address. We also design an investment strategy for your pension funds when they arrive in New Zealand.
Once all the UK Pension provider requirements are met, they transfer your pension directly to the NZ scheme to be invested. This process can take 3-6 months – a lot depends on the speed of the UK Pensions Scheme. It is not a quick process.
What does it cost?
There is no charge to investigate and retrieve your pension information from overseas, and you're under no obligation to proceed with us once we have.
The complexity of transferring UK pensions varies enormously from client to client. We charge a set fee commensurate to the amount of time we expect it to take us – not a % of the funds transferred. This ranges between $750-$2,000 +GST. The cost varies depending on the complexity of the pension transfer and the type of scheme (defined benefit schemes are more complicated and will require advice from a UK adviser, which we can arrange for you). For most clients, this works out to be significantly cheaper than providers who charge a % of the funds transferred. You have the option for these fees to be deducted from your pension directly.
Once we have some initial information about your pension, we’re able to advise our fees. There is no cost up to this point.
Once your pension is fully invested Castle Trust charges 1% of Funds Under Management annually. This pays for our ongoing retirement planning advice.
We recognize that few pension transfer providers are upfront about the costs of transferring your pension or the ongoing costs. We don't think this is best practice.
Active investment management, automatic rebalancing (LifeCycle process only), online reporting and a high level of investment diversification are all included in the NZ Funds Managed Superannuation Service simple base investment fee. There are no establishment, contribution, termination, withdrawal, switch or transfer fees.
ROPS Management & Administration Fees *
ROPS GBP Income Strategy: 1.20%
Income Strategy: 1.20%
Inflation Strategy: 1.40%
Growth Strategy: 1.60%
* From time to time performance fees may be payable to external managers. See the PDS and latest Fund Update for details of external underlying investment manager performance fees.
The full Product Disclosure Statement can be read here: https://www.nzfunds.co.nz/Assets/Documents/superannuation/offer-documents/nzf-superannuation-product-disclosure-statement.pdf